Navigating Melbourne's Property Investment Risks: A Suburban Analysis

Property investors in Melbourne are facing a mixed bag of outcomes, with certain neighbourhoods seeing frequent losses while others reap considerable profits. Critical to the experience is the choice of location, which can starkly influence investment returns. Inner-city areas are particularly prone to losses, highlighting the importance of careful selection for aspiring investors in the Melbourne property market.

Inner Melbourne's Challenging Investment Landscape

Investment properties in central parts of Melbourne have shown a higher tendency for losses, with up to 40% of properties being sold for less than the purchase price. Specifically, the Melbourne City Council and Stonnington local government areas have seen median losses soar up to $60,000.

These figures present a stark contrast to the fortunes in the outer suburbs, where losses are less frequent and less severe. For instance, in Wyndham, only 7.5% of investment sales incurred losses, averaging a median of $15,000. In some suburbs like Maroondah, every investor made a profit, with the median benefit being an impressive $284,500.

Factors Influencing Investment Outcomes

Two fundamental factors skewing the risk of loss towards certain districts are the types of properties and the prevailing market conditions. Eliza Owen, head of residential research at CoreLogic, notes that outer suburbs typically have more houses which have seen higher price growth compared to apartments that dominate inner-city areas. Moreover, apartments have also been hit harder by interest rate increases.

While higher interest rates threaten the finances of many investors, leading to potential sales out of necessity, land taxes implemented by the Victorian government have added another layer of pressure. Additionally, the quality of construction, particularly issues with building materials like flammable cladding, has adversely affected sales prices for Melbourne apartments.

The Current Climate for Property Investors

Given rising interest rates and additional legislative requirements, investors are finding the environment more challenging. Financial institutions have become more stringent with loan approvals, particularly for smaller units. Nevertheless, some investors are returning, focusing on smaller houses or flats.

Investors are seemingly being edged out in favor of owner-occupiers, which tightens the rental market due to a shortage of available rentals. Yet, experts like Jarrod McCabe of Wakelin Property Advisory suggest a potential comeback for property investors, anticipating a shift back to the market if interest rates stabilize, drawn by attractive rental returns.

Investment, Property, Melbourne