Melbourne property investment potential comes with caveats, expert warns

New research has identified Melbourne as the top capital city for property investment, but experts caution investors to be selective in their asset choices.

The 2024 PIPA Annual Investor Sentiment Survey found 26.2% of respondents believed Melbourne was currently the best place to invest in property.

However, Propell Property Managing Director Michael Pell advised investors to exercise caution when considering the Melbourne market.

“Melbourne dwelling prices have fallen compared to the same period last year, while cities like Perth, Brisbane and Adelaide have posted double-digit price growth over the same period,” Mr Pell said.

He attributed Melbourne’s depressed market to several factors, including a new land tax regime set to remain in place for a decade and recent rental reforms perceived as anti-investment.

Despite these challenges, Mr Pell suggested Melbourne still had upside potential, but warned against indiscriminate property purchases.

“Purchasing counter-cyclically is often a smart property investment strategy, however, there must be a number of market fundamentals to support future capital growth as well,” he said.

Mr Pell noted that while Melbourne is Australia’s most populous city, current tax and rental policies may lead to market underperformance in the near future.

For investors looking to capitalise on Melbourne’s market conditions, Mr Pell recommended focusing on optimal locations with small property development potential.

“Rather than relying on market conditions to do all of the heavy lifting, which may take some time in Melbourne given the current policy handbrakes, savvy investors can create their own capital growth by constructing new dwellings, such as duplexes,” he said.

This approach could potentially add to rental supply while creating dwellings with higher price points and strong yields upon completion.

Mr Pell advised investors to target properties with specific attributes to enhance chances of future capital growth.

“In Melbourne, they should be looking for three- to four-bedroom houses with good land size, as well as being close to infrastructure, such as shopping centres, schools, and childcare,” he said.

As Melbourne’s property market presents both opportunities and challenges, investors are urged to conduct thorough research and seek professional advice before making investment decisions.