{"id":183152,"date":"2024-08-20T14:30:21","date_gmt":"2024-08-20T04:30:21","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=183152"},"modified":"2024-08-19T09:34:20","modified_gmt":"2024-08-18T23:34:20","slug":"melbourne-property-will-deliver-the-strongest-growth-over-the-next-decade","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/melbourne-property-will-deliver-the-strongest-growth-over-the-next-decade\/","title":{"rendered":"Melbourne property will deliver the strongest growth over the next decade"},"content":{"rendered":"

In November 2018, I hosted an\u00a0investment briefing\u00a0where I presented what I thought to be a compelling thesis on why the Brisbane property market<\/a> was poised for significant growth.<\/p>\n

Brisbane\u2019s median house price has since surged by an impressive average annual rate of 9.96% over the 5 years from 2019 to 2023.<\/p>\n

Consequently, the median house price<\/a> is 60% higher than it was at the beginning of 2019.<\/p>\n

Similarly, in\u00a0August 2023, I concluded that Perth was on the cusp of a growth cycle.<\/p>\n

This prediction has been vindicated by the latest data from CoreLogic\u2019s daily price index, which indicates Perth\u2019s median house price has risen by over 20% in the past 12 months.<\/p>\n

I present these reminders not as a means of patting myself on the back, but to illustrate a fundamental principle: investment returns tend to revert to the mean over time.<\/p>\n

Applying this analytical approach, my current forecast is that Melbourne is poised to deliver the highest dollar-value capital growth over the next decade.<\/p>\n

Below, I outline the reasons underpinning this prediction.<\/p>\n

\"Melbourne\"<\/p>\n

What is driving negativity sentiment?<\/span><\/h2>\n

Over recent years, investor sentiment towards the Melbourne property market<\/a> has soured, driven by stricter tenancy laws, increased taxation, and growing concerns about the state\u2019s escalating debt (thanks Dan!).<\/p>\n

In both 2015 and 2021, the Victorian government implemented stricter tenancy regulations. \r\n\r\n\r\n

<\/div><\/p>\n

While it\u2019s essential to safeguard tenants from unfair landlords, these regulations have certainly increased compliance costs, increased maintenance costs as improvements are mandated in certain situations, and reduced the amount of control investors have over their valuable assets.<\/p>\n

Over the past few years, Victoria has introduced a host of new property taxes including the COVID-19 Debt Temporary Land Tax Surcharge, windfall gains tax, Absentee Owner Surcharge, and Vacant Residential Land Tax, amongst others.<\/p>\n

A\u00a0report\u00a0from the Parliament Budgetary Office highlighted that Victoria now imposes the highest property taxes nationwide.<\/p>\n

Compounding this negative sentiment is Victoria\u2019s soaring state debt, estimated at $126 billion.<\/p>\n

Rating agency S&P has cautioned that this debt could nearly double by 2027.<\/p>\n

Given this fiscal strain and the state\u2019s heavy reliance on property tax revenue, investors are understandably concerned.<\/p>\n

However, while these negative factors do increase property investment costs, their financial impact may already be fully reflected in current property prices.<\/p>\n

Moreover, in the long run, fundamentals of supply and demand will eventually overrule short-term sentiment.<\/p>\n

Melbourne\u2019s sprawling suburbs<\/span><\/h2>\n

Unlike Sydney, which is constrained by its\u00a0geographical boundaries of water and national parks<\/a>, Melbourne has room to expand (spread out) to accommodate the increased population.<\/p>\n

Consequently, Melbourne doesn\u2019t have the same large disparity in property prices between inner-blue-chip suburbs and outer suburbs that Sydney does.<\/p>\n

This geographical difference might lead some investors to mistakenly believe that Melbourne\u2019s outer suburbs offer comparable investment prospects to its inner blue-chip areas because the price differential isn\u2019t as large.<\/p>\n

However, with Melbourne\u2019s population projected to\u00a0surpass Sydney\u2019s by 2036, infrastructure development will struggle to keep pace.<\/p>\n

Particularly considering how long it takes the government to build it and how much it ultimately costs!<\/p>\n

As a result, due to congestion, travel times and lower amenities, outer suburbs will become less attractive to live in over the next few decades compared to blue-chip suburbs.<\/p>\n

In my view, blue-chip property prices are relatively good value when compared to property prices in the outer suburbs.<\/p>\n

Melbourne is cheap relative to other cities<\/span><\/h2>\n

The chart below compares Melbourne\u2019s median house prices to Sydney, Brisbane, Adelaide, and Perth since 1980.<\/p>\n

It illustrates how much Melbourne property prices have underperformed over the past 5 years.<\/p>\n

\"Relative<\/p>\n

When comparing Melbourne\u2019s median property value to that of Brisbane, Adelaide, and Perth, the current relative value isn\u2019t as depressed as it was between 2006 and 2008, as highlighted in the red rectangle.<\/p>\n

This could suggest that Melbourne might continue to underperform over the next 1 to 3 years.<\/p>\n

However, when measured against Sydney, a city with more comparable market dynamics, Melbourne is currently offering its best value in years.<\/p>\n

To put it into perspective, Melbourne\u2019s median house price is now equivalent to 57% of Sydney\u2019s median price.<\/p>\n

The only time Melbourne\u2019s relative price was lower than this was back in 1981, at 56% of Sydney\u2019s median.<\/p>\n

This comparative analysis underscores that Melbourne\u2019s property prices are currently at an unusually low point.<\/p>\n

Given the principle of mean reversion in market cycles, it\u2019s reasonable to expect that Melbourne\u2019s property prices will eventually rebound.<\/p>\n

This presents a compelling investment opportunity.<\/p>\n

The past 3 to 5 years have been relatively poor for Melbourne<\/span><\/h2>\n

Over the past 3 to 5 years, Sydney, Brisbane, Adelaide, and to a lesser extent, Canberra have all boomed.<\/p>\n

However, Melbourne has underperformed relative to all capital cities as illustrated in the recently updated chart below.<\/p>\n

\"Distribution<\/p>\n

This chart clearly demonstrates that property markets tend to move in two distinct cycles.<\/p>\n

A flat cycle is always followed by a growth cycle. In the long run, growth rates revert to their mean of circa 7.5% p.a.<\/p>\n

This suggests that the average growth rate over the next 10 years in Melbourne is likely to be above average, as I have discussed\u00a0here<\/a>.<\/p>\n

You fund retirement in dollars, not percentages<\/span><\/h2>\n

I\u2019ve previously discussed the\u00a0Perth property market<\/a>, suggesting it\u2019s poised for a significant growth cycle following a stagnant 15-year period.<\/p>\n

I believe there\u2019s a strong possibility that Perth\u2019s median property price could nearly double over the next decade.<\/p>\n

While Perth has already begun to see price growth, I think there\u2019s substantial potential for further appreciation.<\/p>\n

As a result, in terms of percentage growth, Perth may outpace Melbourne.<\/p>\n

However, when considering absolute dollar returns, I anticipate Melbourne will deliver the most substantial growth over the next decade, primarily due to its higher starting property values.<\/p>\n

According to the REIA, Melbourne\u2019s median house price was $909,000 as of December 2023, compared to Perth\u2019s $645,000.<\/p>\n

When planning for retirement, it\u2019s the dollar value return that holds the utmost significance.<\/p>\n

Therefore, Melbourne\u2019s higher initial property values suggest it could offer superior dollar-based growth opportunities for investors.<\/p>\n

In addition, it is my view the Melbourne market is a lower-risk investment given its larger and more diverse population.<\/p>\n

Apartments will also be long for the ride<\/span><\/h2>\n

In March 2024, I shared\u00a0my thesis<\/a>\u00a0why I believe Melbourne\u2019s investment-grade apartments are intrinsically undervalued and likely to yield attractive investment returns over the next decade.<\/p>\n

The relative value of Melbourne, as discussed above, only adds weight to this thesis.<\/p>\n

\"Melbourne5\"<\/p>\n

What will you think in 2034?<\/span><\/h2>\n

In 2034, a decade from now, I\u2019m confident we\u2019ll view property prices in Melbourne\u2019s blue-chip suburbs from 2024 and 2025 as relatively cheap.<\/p>\n

While investment sentiment is currently subdued, I expect it to shift in the next 1 to 3 years.<\/p>\n

It\u2019s challenging to pinpoint the exact timing of this sentiment reversal, but historically, market lows often coincide with the peak of negative sentiment \u2013 something I believe we\u2019re experiencing now.<\/p>\n

Given Melbourne\u2019s relatively balanced property market, with an even level of demand from buyers and sellers, acquiring a property at fair market value is easier to do today compared to more buoyant markets.<\/p>\n

However, the main challenge in identifying the\u00a0right<\/em>\u00a0property is a process that can take several months or even more than a year.<\/p>\n

Considering these factors, there\u2019s little reason to postpone investing in Melbourne.<\/p>\n

You risk \u2018missing the boat\u2019 if you wait for sentiment to improve.<\/p>\n

While investing in Melbourne might not yield significant short-term returns over the next 1 to 3 years, selecting a high-quality, investment-grade property today, I have high confidence that you will be very pleased with the returns over the next decade.<\/p>\n\r\n\r\n\r\n

<\/div>\r\n
<\/div>\n","protected":false},"excerpt":{"rendered":"

In November 2018, I hosted an\u00a0investment briefing\u00a0where I presented what I thought to be a compelling thesis on why the Brisbane property market was poised for significant growth. Brisbane\u2019s median house price has since surged by an impressive average annual rate of 9.96% over the 5 years from 2019 to 2023. Consequently, the median house…<\/p>\n","protected":false},"author":9,"featured_media":180708,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[54,3],"tags":[],"class_list":["post-183152","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-property-updates","category-property-investment"],"acf":[],"yoast_head":"\nMelbourne property will deliver the strongest growth over the next decade<\/title>\n<meta name=\"description\" content=\"In November 2018, I hosted an\u00a0investment briefing\u00a0where I presented what I thought to be a compelling thesis on why the Brisbane property market was...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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