Rush to quality driving inner-Melbourne market resurgence

An influx of international students and the return of Australians from overseas is driving activity in Melbourne’s luxury apartment sector, with a future supply crunch set to sustain price growth, says The Agency’s Michael Paproth.

Recent figures from CoreLogic showed properties within the Melbourne inner-city market bucking the trend of price declines, values there having risen by 3.9 per cent over the past 12 months.

Mr Paproth said that conditions in the market were being driven by a “perfect storm” of population dynamics and a shortage in new supply.

“I think the main reasons are the lack of starts – the lack of new developments launching and starting construction – which has been brought on by the well-publicised increases to build prices and construction pricing,” he said.

“Then it’s the perfect storm, where you’ve got expats flocking back to Australia as well as the 55,000 Chinese students who are being sent back to Australia for face-to-face learning, and we’re also hearing that (the government) is currently processing numerous skilled visas in the tens of thousands if not the hundreds of thousands.”

Mr Paproth said that, while these groups may appear to represent very distinct markets, they had many shared traits, be they renters or buyers.

“I think the commonality is that they are looking for spacious, luxurious properties with proximity to lifestyle amenities,” he said.

Buyers across all groups were also looking for well-regarded developers with a proven track record of delivering projects, he added.

“Buyers are really seeking out big-name developers, developers with great reputations, with a track record,” he said.

“Buyers are prepared to sit and wait for those named architects and builders with reputations.”

He cited the recent sale of a Brighton penthouse in the Pillar+Tide development from developer Fortis and architects Carr for $20,000 per square metre as evidence of the trend.

Demand for this type of property was particularly concentrated in city fringe markets like South Yarra and Collingwood, he said, as well as Brighton and St Kilda.

Although many Melbourne apartment buyers were owner-occupiers, Mr Paproth said he had witnessed a resurgence in investor activity as rents began to increase in the inner-city.

“Investors are starting to come back into the market as they recongise that the rental crisis that all cities are going through is only going to get worse as the students return,” he said.

He predicted that the Albanese government’s proposed changes to the taxation of high super balances would also see high net worth investors return to the market.

“Investors are absolutely identifying that opportunity, certainly as superannuation now is not the go-to, the focus is back on property rather than investing in your super fund,” he said.

Other factors driving a resurgence in the Melbourne market, particularly for high-end properties, included a desire for an asset that didn’t require ongoing maintenance.

“People want the hotel experience, they want to lock up and leave because we’ve all rediscovered travel,” he said.

While the cash rate had been a big story for the property industry in the past 12 months, it held less relevance at the top end of the market, he said.

“The luxury end of the market are often cash buyers,” he said.

Even if buyers did require a mortgage, many buyers were comparing current lending rates against the histrocial average.

“The greatest carnage of the nine interest rate hikes in a row is that you can still get a home loan under 5 per cent, which is still under the long term average,” Mr Paproth said.

“If that’s the case then we’re in a really good position.”

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Jack Needham

Jack Needham was a Digital Editor at Elite Agent in 2022 & 2023