Prospects for markets across Greater Melbourne will improve as 2023 progresses. The key factor that will drive a return to higher market activity and prices is the impact of migrants and overseas students.
And this will build on the recovery which is already under way.
International borders re-opened in 2022 and this has led to an influx of overseas migrants and students, with Melbourne a key destination for those coming to Australia.
But it takes time for this to translate into major impact on property market activity. The first impact is on the rental market, with overseas students helping to create a sharp decrease in the vacancy rate for Melbourne.
Overseas migrants coming to Australia typically rent first and that has also impacted on the diminishing supply of rental properties. The Melbourne vacancy rate has dropped from 4% late in 2021 to 2.4% a year ago and now 1.1%.
In the year ending September 2022, the population of Victoria made a net gain of almost 100,000 from net overseas migration, with most of that going directly into Melbourne.
Eventually, many of those migrants will transfer from renting to ownership, with a significant impact on Melbourne buying activity and prices.
Already, there is evidence that the downturn in the Melbourne market has ended and that a meaningful recovery is under way.
A number of the leading research firms, including PropTrack, CoreLogic and SQM, Research, reported growth in the Melbourne median house price in March 2023.
CoreLogic recorded a 0.6% rise in Melbourne’s median house price during March, while the SQM Research price index published on 18 April reported a 1.4% rise in Melbourne house prices in the past month.
The recovery in Melbourne reflects improved market conditions nationally, with sales activity, auction clearance rates and prices all improving, as well as the Westpac consumer sentiment index recording a major rise in confidence, particularly for the future of house prices.
At the same time, vacancy rates are at historic lows and all research sources are reporting significant increases in residential rents. According to SQM Research, residential rents have risen 23.4% in Melbourne in the past 12 months, including a 3% rise during March.
All this represents a major recovery in a Melbourne market which struggled in 2022.
The Melbourne market started on a steady downward trajectory at the start of 2022. Our quarterly surveys of sales activity charted a decline in the number of Melbourne suburbs classified as rising markets.
This means the downturn started well before interest rates rose – but the rate of decline picked up as the year progressed.
Despite the general negativity of those results, there were some green shoots in markets across Greater Melbourne.
Outer-ring areas in the north and west of the Greater Melbourne area continued to attract good buyer demand, despite the economic disruption happening in the background.
Some of the middle-market areas of Greater Melbourne were performing well and there remained evidence of good demand for affordable apartments in inner-city areas.
There were also signs of recovery in sales activity in some of the Greater Melbourne locations that had been classified previously as declining markets.
Those early signals of recovery in late 2022 have evolved into undeniable evidence of a return to stronger markets in the early months of 2023.
And perhaps the strongest boost to Melbourne’s future prospects for real estate growth is the news that the city has overtaken Sydney as the biggest city in the nation.
This is based on the urban area of Greater Melbourne, which is now larger than Greater Sydney. And the population of Melbourne is growing faster than Sydney’s, with the ABS confirming that Greater Melbourne now has 4,875,400 residents, compared to 4,856,700 in Sydney.