SPECIAL REPORT Melbourne Property Market - What to expect next?

State Of The Nation Report

SPECIAL REPORT Melbourne Property Market - What to expect next? One of my top 3 pillars to sound property investing is Timing. Where is Melbourne’s property cycle at and does it represent a good investor opportunity? What is the effect of high density supply on the general rental market and what is the impact on the other investment pillars, Affordability and Safety. Let’s find out in this post.



Hi, I'm Phil Anderson from LifeCorp, the home of street smart property investors. Today we're gonna have a look at the Melbourne property market. Its a market that I've been getting an increased amount of questions about, particularly with regards to the risk that seems to be emerging in certain property types. Let's have a look at it together.

For those of you that have been watching my information, my technique, my recipe for success in the Australian property market, you would know that a lot of it has to do with great timing. I watch cycles all over Australia, and I'm looking for turning points. I'm looking for things that are gonna create 7 o'clock markets that are gonna give me an ideal time to buy in the market, so I can pick up on the best time to get the growth, the capital growth, under those properties. Melbourne has presented a hard challenge for many property investors in recent years because, as opposed to most cycles- where most cycles sit very flat for quite a period of time, and then they get all of their growth in about 1/3 of a cycle- the Melbourne market has been performing above expectation for quite a few years now, kind of, on average, doing something like this, making it very hard to predict where to get in, where to get out, how to take advantage of that market itself.

Now, regardless of where your suburb is at, the common thought is, the Melbourne market has had quite good growth for quite a substantial period of time, and it is due to plateau off, it is due to settle and have less growth than it has in recent years. Last year, house growth in the Melbourne market, in the greater Melbourne market, was around 7% growth. Interestingly, though, the unit market was only about 2%. Doesn't surprise me. I actually expected that it might have been negative growth in the unit market.

Why would I say that? Well, one of the biggest reasons I would say that is because there's certainly an issue that I've brought attention to many of the people following my system with regards to oversupply, particularly in the high-density stock area. So, the reality is- I'm talking about high rise units- vacancy rates are incredibly important for a property investor. And yet, if you dissect the suburbs of Melbourne- and there are plenty of cycles, a whole range of elements to take into consideration- but, when you dissect the suburbs, vacancy rates in the Melbourne markets sit anywhere from about 2%, which is quite acceptable, to alarmingly high, 11% vacancy rates, dependent on which suburb you're targeting and which suburb you're actually appraising.

This sort of level I've never seen. This is crazy levels of vacancies. The amount of vacant properties is just staggering, and the highest of all of the capital cities. The only one that comes close is around 10% in the CBD of Perth, where there's also a massive oversupply of high rise units. Now, I spoke to a room of about 270 people, I think it was, in Melbourne a couple years ago, and I predicted this. There was twice as many units being built as the demand was, and yet people couldn't see it. They just saw the cranes and the towers getting built, and they thought there was this boom underway. Of course, there has been good growth in Melbourne. But so much of it has been held back by an oversupply issue. And it seems to not have ended yet. It still seems to be, you know, still reaching its crescendo.

Now, the problem is, when you get such a big oversupply of stock, it even effects other property types. I'm a bit of a fan of medium-density properties. I'm certainly warning against this. This is an area to definitely avoid. There's massive oversupply of the high rise unit stock in Melbourne, and I think that's gonna take quite a while to soak up that stock, quite a few years for that to correct itself. Now, the problem is, when you have such an oversupply of this stock, even the tenants that prefer to rent these sorts of properties- townhouses and medium-density properties, that may be close to train stations or cafe precincts, whatever- they will be affected by this. The people that own these sorts of property types will be affected by the oversupply, the landlords that must drop their rent to try and get a tenant. And obviously, that's gonna affect this property type next. People who prefer to live here will say, "You know what? The rent is so cheap... I'm just gonna take that for 12 months, and then we'll see where we go from there." So, for me, this is a very concerning element of the Melbourne market.

This, however- low-density- like many of the other cities, I think, represents, still, very stable and good-quality investment potential. Low risk, and still has some growth ahead. Whilst the Melbourne market is gonna plateau out, I think the outer suburbs, there's certainly- because of the great infrastructure down there- there's certainly some outer suburbs that still may have some potential.

Across the board in Melbourne, it is very tough- in most of Victoria- very tough for property investors to really get excited by investing in that stock in that area. And the big reason is because of the yields. The rents are low. It's actually the lowest-yielding state of any state that I've investigated in Australia, and I'm in five or six of those states pretty actively. And the reality is, with the yields being so low, it makes the holding costs hard on your pocket. And if you've gotta put in $150 a week, or $200 a week, that just takes away your lifestyle. If it's more than that, it's crazy. For me, I would set a maximum budget of about $20 a week. Buy a property. Your tax, and the rent, and those sorts of things should pay for that property, and very little of your take-home income should be required to hold that property. $20 a week maximum. And that's why they call me "The Lunch Money Property Millionaire." I've been saying for years, if you can't buy a property with your lunch money, don't buy it. $20 a week at the moment, with where interest rates are, should be maximum to buy one of those properties.

Now, for me, I've always looked for timing. When I'm in other cycles- and I can find cycles around Australia where I can definitely pick this stage of the market. And we can target it. We've targeted it two or three years ago in the Sydney market, we've followed on after some of the big, major regional regional hubs. We don't go to the little mining towns and the little pretend areas. But, we look for these big indicators- seven indicators that create great timing to enter the market. And I think there are great opportunities if you've got equity in your property today to consider looking outside of the Melbourne market, potentially, looking at where is the next growth center- maybe southeast Queensland, or whatever that may be- to use the equity to target these 7 o'clock times to enter the market.

Now, I think there are three really important elements, and these are the very important key elements that underpin every great property portfolio in Australia today. Timing is #1. #1 is about getting your timing right, making the timing work for you. #2 is about affordability, making sure the property price points are right, the holding costs are really enjoyable. And then, #3 is all about safety, making sure you keep your investing safe. None of us wanna go backwards. There are the three key elements. Timing, affordability, and safety.

I feel so passionate about those three topics, I think they are the cornerstone of every great property portfolio at the moment. I've put together a webinar on this content, an hour of great content that'll give you really good insight into those three key elements. You'll notice, to the right of this page, you can register for this free upcoming webinar, about one hour of content. I'm just gonna pour it all out and give you the best of what's going on at the moment, give you some really great insight into those elements.

But remember, guys- if you're gonna buy one of these properties, if you're gonna get this timing right, don't forget- register for the webinar. Get the whole insight into how we do this. Come along, I'll just pour it all out for you, free of charge. But when you decide to swoop and you're gonna buy a property at 7 o'clock, and you're understood what these elements are- don't forget the holding costs are incredibly important, cuz I want you to have a great lifestyle today as well. Buy, invest for your future, but have a great lifestyle today. If you can't buy it with your lunch money, just like I always say- if you can't buy it with it with your lunch money, don't buy it.


  1. Mark McManus says:

    Hi Phil,
    I've had a one bedroom apartment in Brunswick that I purchased for 355k about 4 years ago brand new. I currently rent it out for $385 per week, and has had several tenants, but no long waiting times. The current tenant has just extended the lease for another 6 months.
    What would be your advice on either keeping it for the long term or selling up now while I can?
    Appreciate your advice

    • Test2 Test2 says:

      Hello Mark
      Thanks for your comment. I’m sure you understand that Phil is unable to answer all the comments that come through our website, so I am responding on his behalf.
      There are many variables to take into consideration with your question and as you are one of our valued Lifecorp members, Phil suggests you contact Lorraine, your property coach, to discuss your situation and offer some advice on this property to see what would be the best outcome for you at this time.
      You can organise an appointment with Lorraine through her PA Helen - helen@lifecorp.com.a or 0414 533 781.
      Thanks Mark and I hope you continue to enjoy Phil’s Blogs.

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