Affordable & Liveable Property Guide 1st Half 2021 - Melbourne

Overview

Median property prices in Melbourne Metro increased by 2.4% for houses to $1,065,000 from Q1 2020 to Q1 2021¹, and increased by 3.8% for units at $630,000. Across the same period, total sales in Melbourne Metro increased by 28.6% (to 6,903 sales) for houses, and by 32.2% (to 7,285 sales) for units.

Melbourne Metro’s median price activity has proven to be extremely resilient, considering the severity of COVID-19 restrictions that the area has faced since late 2020. A more confident consumer in early 2021, coupled with a low interest rate environment and lenient lending restrictions, have contributed to the current price growth.

A key finding in this report was that majority of affordable and liveable suburbs identified are located within the middle-outer ring of Melbourne Metro, largely driven by flexible working conditions due to COVID-19. Investors looking to purchase in those areas would benefit from higher yields and low vacancy rates that outperform the Melbourne Metro benchmarks.

Table 1 highlights top suburbs in Melbourne Metro based on price growth and total estimated value of projects commencing in the 1st half of 2021².

Access to Market

The dominant proportion of homes sold in Melbourne Metro across 2020/21¹ were in the premium price bracket of $1,200,000 and above (40.8%). Units also recorded a dominant premium price bracket of $750,000 and above (31.2%). This confirms there is a market recovery, with a shift back to higher activity in the premium market. Affordable options are available, however first home buyers must act quickly. 

Affordable & Liveable Suburbs

To identify affordable and liveable suburbs, premiums of 68% for houses and 24% for units were added to the Victorian (VIC) average home loan, which were below and on par with those required to reach Melbourne Metro’s median prices (110% for houses and 24% for units). Thus, the chosen suburbs have median property prices that are below Melbourne’s median prices, meaning that the suburbs identified within this report are more affordable for buyers.

Considering all methodology criteria (property trends, investment, affordability, development, and liveability), Tables 2 and 3 identify key suburbs that property watchers should be on the lookout for.

Investment Conditions

In March 2021, house rental yields in Melbourne Metro were recorded at 2.6%. In the 12 months to Q1 2021, the median house rental price remained stable at $500 per week, while average days on the market declined by -7.1% (to 26 days). Despite tough COVID-19 lockdowns and restrictions it experienced, Melbourne Metro’s rental market remained resilient.

In March 2021, Melbourne Metro recorded a vacancy rate of 4.4%, which is above that of Sydney Metro (3.4%) and Brisbane Metro (1.5%). Vacancy rates in Melbourne Metro sit above the Real Estate Institute of Australia’s (REIA) healthy benchmark of 3.0%, due to COVID-19 restrictions. However, in the long run, Melbourne Metro vacancy rates are forecasted to recover towards healthier levels, as history suggests it has always remained under the REIA healthy benchmark.

Methodology

This affordable and liveable property guide for Melbourne Metro analyses all suburbs within a 20km radius of Melbourne CBD. The following criteria were considered:

• Property trends criteria – all suburbs have a minimum of 20 sales transactions for statistical reliability purposes. Based on market conditions, suburbs have either positive or as close as possible to neutral price growth between 2019 to 2020/21¹.
• Investment criteria – as of March 2021, suburbs considered will have an on-par or higher rental yield than Melbourne Metro, and an on-par or lower vacancy rate.
• Affordability criteria – identified affordable and liveable suburbs have a median price below a set threshold. This was determined by adding percentage premiums to the Victorian (VIC) average home loan, which was $506,328³ as of Q4 2020. Premiums of 68% for houses, and 24% for units were added, which were below those required to reach Melbourne Metro’s median prices (110% for houses and 24% for units). This places the chosen suburbs below Melbourne’s median prices, meaning that the suburbs identified within this report are more affordable for buyers.
• Development criteria – suburbs identified must have a high total estimated value of future project development for the 1st half of 2021², as well as a higher proportion of commercial and infrastructure projects. This ensures the suburbs show signs of sustainable economic growth, in turn positively affecting the property market.
• Liveability criteria – all identified suburbs have low crime rates, availability of amenities within a 5km radius (i.e. schools, green spaces, public transport, shopping centres and health care facilities), and an unemployment rate on-par or lower in comparison to the VIC average (as determined by the Department of Jobs and Small Business, December Quarter 2020 release).