‘Undervalued’ Melbourne Market Primed for Rebound

Six months of stagnant sales, two years of extended lockdowns and a prolonged construction-cost crisis have left Melbourne’s once-booming housing market languishing at sixth place in Australia’s property value rankings. According to Charter Keck Cramer analysis, Melbourne has experienced the lowest growth rate of all major Australian capitals since 2020, with unit prices increasing by just 1.3 per cent annually compared to double-digit growth in other cities. With apartment launches significantly down and construction commencements at historic lows, Charter Keck Cramer national executive director of research Richard Temlett labelled 2024 “the worst year for developments in the last 20 years”. Yet beneath these challenging market conditions, he believes the fundamentals that once made Melbourne a property powerhouse remain intact. Speaking at a Charter Keck Cramer State of the Market event on Monday, Temlett said the city was substantially undervalued and primed for a dramatic comeback. “Melbourne is significantly undervalued and we’re already seeing repatriation as people return from Adelaide or leave Queensland to come back to Victoria. I believe Melbourne will rebound strongly,” Temlett said. Charter Keck Cramer data shows established Melbourne apartments selling at $8000-$10,000 a square metre, while new apartments need to sell at $13,000-15,000 a square metre to be economically viable. This price disparity has stalled many development projects but presents an opportunity for investors and homebuyers as the market recalibrates. ▲ Charter Keck Cramer national executive director of research Richard Temlett. “When looking at unit price growth indexed back to 2000, you can see that Perth, Adelaide and Brisbane benefited from the pandemic—they avoided lengthy lockdowns and have more affordable housing,” Temlett said. “Sydney and Brisbane property prices soared to new heights during the pandemic but Melbourne barely moved.” The State of the Market H2 2024 report shows Melbourne’s median unit price at $680,900, compared with Sydney’s $859,900 and Brisbane’s $607,400. Post-2020 growth rates show Melbourne units increased by just 1.3 per cent annually, while Adelaide (14.3 per cent), Brisbane (14.9 per cent), and Perth (12.7 per cent) experienced substantial growth. At least five developer groups from Sydney had begun acquiring sites in Melbourne, recognising the value opportunity, Temlett said. Buyers who previously considered Brisbane properties at $13,000 to $14,000 a square metre are returning to Melbourne where they can purchase at similar price points but in a larger city with better employment prospects. Temlett said there was a significant opportunity for investment funds or government to buy about 7500 unsold apartments in the Melbourne market at below replacement cost. ▲ Cox Architecture ’ s design for Lendlease ’ s build-to-rent tower in Melbourne ’ s Docklands. “They could rent these units out in the short term, wait for the market to appreciate and sell later. Not only would this represent a sound investment but it would also clear the residual stock that’s preventing new projects from launching at the $12,500-15,000 per square metre price point needed for financial viability,” he said. There’s other research that suggests apartment living is gaining prominence not just in Melbourne but also across Australia. Domain chief economist Nicola Powell notes that across 60 per cent of Australian suburbs, apartment values are rising faster than houses —a historic reversal in traditional property performance. “More of our population is opting to live in an apartment,” Powell told The Urban Developer , forecasting unit prices rising nationally by 4.6 per cent compared with 3.3 per cent for houses in 2025. This broader shift towards apartment living could further accelerate Melbourne’s market recovery as buyers prioritise affordability and location over space. Temlett said the projected shortfall of at least 24,000 apartments through 2025-2027 presented a substantial development opportunity for forward-thinking investors. While the Charter Keck Cramer report forecasts annual apartment supply of just 7400 units against demand exceeding 13,000 units a year, Temlett views this imbalance as a catalyst for market growth. “This supply-demand gap creates a compelling business case for new developments,” Temlett said. “Developers who can secure financing and navigate the current challenges will likely benefit from less competition and stronger demand as the market rebounds, particularly if government initiatives to address housing affordability materialise.” The report also forecasts apartment markets across Australia to start improving throughout 2025 and into 2026 “as we enter an interest rate cutting cycle, the federal election is decided, federal and state Budgets are announced, and all levels of government are forced to respond to the housing and rental crisis”. ▲ Greystar ’ s $183-million Hoddle Street Collingwood project, comprising 407 apartments across two towers, was fast-tracked last year. Underpinning this optimistic outlook is Melbourne’s population growth, projected at 100,000 new residents a year until 2030—significantly outpacing Sydney (81,000), Brisbane (47,000), Perth (45,000), and Adelaide (13,000). The build-to-rent sector is already showing promise, with more than 3100 apartments across eight projects completed last year and nearly 6000 build-to-rent apartments under construction. The MIT (Managed Investment Trust) changes had attracted international capital, particularly from Japanese investors, Temlett said, and he predicted interest rate cuts would catalyse further market movement. “As the RBA reduces rates further, I think the market will jump significantly,” he said. “I believe there will be two more rate cuts by the end of the year, which should spur demand in the established segment of the market and drive prices upward.” With Melbourne’s population forecast to grow at more than 100,000 people a year to 2030 and eventually to “reach London’s size of about 8 million people by 2050”, the fundamentals for market recovery are firmly established, Temlett said. Melbourne is “anticipated to go on a very strong run” starting in late 2025, according to the report, suggesting that those who position themselves now could benefit significantly when the city reclaims its former position in Australia’s property rankings. “Melbourne won’t stay the sixth most affordable city in Australia—it will rebound, and it will bounce back big,” Temlett said. “When interest rates decline further, I think the market will jump by at least 15-20 per cent as it’s currently about 15-20 per cent undervalued.”

‘Undervalued’ Melbourne Market Primed for Rebound

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