Investors warming to Victoria but is the sentiment justified?
The Victorian, and Melbourne, property markets have been the country's great underperformers for a decade but sentiment seems to be shifting - and fast.
Victoria’s property market remains mired in mediocrity but the expectation it will reclaim median price ground lost to other fast growing capital cities is intensifying.
The newly released API Magazine Property Sentiment Report Q3 2024 delivered a stunning turnaround in investor sentiment towards the Victorian property market.
Mid-year the state attracted only 8.6 per cent of respondents who felt it was the best state for property investment over the next 12 months.
Three months later a remarkable turnaround had unfolded, with 25 per cent identifying it as having the best property investment prospects for the next 12 months.
This saw Victoria launch itself above New South Wales (24 per cent) and nip at the heels of Queensland (27 per cent) in the investment popularity stakes.
A surge in property listings, high property taxes and a faltering economy have weighed heavily on Melbourne, where prices have fallen continually since the first quarter of 2024.
With that fall has come a perception that Melbourne is now affordable and, if history is anything to go by, poised for capital growth that would return it to its more familiar spot sitting beneath Sydney as the country’s priciest market.
While sentiment and perception can create some property market buzz, the raw figures remain largely unconvincing.
Activity by owner-occupiers, investors and first buyers has remained relatively consistent over the past five years, as revealed in data provided to API Magazine by the Real Estate Institute of Victoria (REIV).
Five-year loan commitment trend
| Month | Owner occupiers | Investor | Owner occupier ratio | Investor ratio | First home buyers (as owner occupiers) | First home buyers ratio |
|---|---|---|---|---|---|---|
| Sep-19 | 8,145 | 3,402 | 70.5% | 29.5% | 2,765 | 33.9% |
| Sep-20 | 9,605 | 3,107 | 75.6% | 24.4% | 3,638 | 37.9% |
| Sep-21 | 10,022 | 4,848 | 67.4% | 32.6% | 3,179 | 31.7% |
| Sep-22 | 8,764 | 4,295 | 67.1% | 32.9% | 2,831 | 32.3% |
| Sep-23 | 8,014 | 3,873 | 67.4% | 32.6% | 2,957 | 36.9% |
| Sep-24 | 8,326 | 3,905 | 68.1% | 31.9% | 3,082 | 37.0% |
Source: REIV for API Magazine
The proportion of first buyers has crept up, even if the total monthly transactions have remained steady for four years, but since September 2021 the proportion of investors opting to buy in Victoria has barely moved.
So what’s with this renewed interest in Victoria, and by extension Melbourne, among our national readership?
A decade of flatlining prices has seen Melbourne tumble from being the second most expensive real estate market in the country to now ranking only above Hobart and Darwin.
Its newfound affordability coincides with a period of population growth.
In the most recent REIV figures available, Victoria saw the third largest monthly interstate migration among the states and territory with 767, behind Queensland (6406) and Western Australia (2505).
Source: ABS data from September 2024
Jacob Caine, President, REIV, said Victoria has always been an attractive destination for overseas and interstate migration.
“Melbourne’s reputation as one of the most liveable cities is well deserved.
“We have a growing population and by default a growing demand for rental properties with new residents more likely to rent before buying.
“The challenge in Victoria is a lack of housing supply, and the need for Government to build a stronger policy platform that will attract new property investors to meet the needs of the market.
“Demand for property has not been an issue for the state and is unlikely to be in the near future too.”
The recent announcement that the stamp duty concession for off-the-plan properties in Victoria has been extended to investors and the price cap removed for home buyers, albeit temporarily, has also been largely welcomed by the sector, as offering a much-needed boost to development.
It comes, however, with the caveat that it is only on offer for a year.
Craig Whatman, a partner at Pitcher Partners Melbourne, it would take more than a sugar hit given to select developers and buyers to address the real structural challenges undermining housing supply in the state.
“Since 1 July 2017 the off-the-plan stamp duty concession has only been available to eligible first home buyers for properties up to $750,000 and other principal place of residence buyers for properties up to $550,000.
“Since that date, the concession hasn’t been on offer to investors, so the same apartment can cost up to $25,000 more for an investor buying off-the-plan than for an owner occupier.
“When competition is high — and there is plenty of incentive to bring new stock to market — that disparity might not matter, but confidence in the property sector remains poor,” he said.
“No politician wins votes by courting property investors, but without them, owner occupiers can’t access stock in the areas they want to buy.
A lot of faith is placed in the notion that every investor departing from the market opens the door for a first home buyer — and that might have some truth in resales — but you can’t get a large-scale apartment development out of the ground without them.”
Mr Whatman said what was needed was early investor engagement in the development process to underpin the financial viability of new projects, to increase rental stock in the market, and to pick up those units that for a variety of reasons are not an owner occupier’s first choice.
Melbourne hotspots emerging
Melbourne’s median house price is approximately $899,000, making it significantly more affordable than Sydney’s median of $1.26 million.
Justin Yang, Director, Vantor Group, said his own experience correlated with the API Magazine sentiment report, with Melbourne becoming increasingly attractive to interstate property investors.
“Melbourne’s property values have seen a moderate decline of about 1.75 percent over the past year, offering potential entry points for investors.
“Historically, Melbourne’s long-term property growth has averaged around 6 percent per annum, reinforcing confidence in the market’s recovery and growth potential.”
He said significant city infrastructure projects, combined with relative affordability, meant several Melbourne suburbs were positioned for strong performance.
“Key suburbs include Sunshine and Footscray in the west, which benefit from projects like the Melbourne Airport Rail Link.
“Werribee and Hoppers Crossing have affordable options in the growth corridor, while Coburg and Reservoir offer proximity to the CBD and appeal for young professionals and Frankston is a coastal suburb with high rental demand and vacancy rates below 1 per cent,” Mr Yang said.
Building booming in Victoria
Where Victoria’s property market is outperforming the rest of the country is in the build-to-rent space.
Knight Frank Australia data released Thursday (14 November) shows that nationally completions reached a record high in 2024, with 4,349 apartments expected to be completed, as the sector continues to expand.
More than half of those under construction or approved are in Victoria, and 2025 is likely to see a higher total close to 6,000 apartments.
Victoria’s ability to attract foreign investment has seen it overcome the elevated construction costs, labour shortages and high funding costs that have prevented the sector expanding further.
Victoria also continues to build thousands more homes than any other state, with more than 60,000 home completions over the last 12 months – nearly 15,000 more homes than New South Wales.
New ABS data shows Victoria built 60,606 homes over the year – a 7.5 per cent increase year on year, while New South Wales built 46,573 homes – a 3.9 per cent decline year on year.
Earlier this month, the ABS also confirmed Victoria continues to set the national benchmark for home approvals – approving around 10,000 more homes than New South Wales and 18,000 more homes than Queensland.
So, ultimately the state’s ability to meet demand may be what instils further confidence among first home buyers but the state’s current affordability could be set to continue.
