Flashy old Sydney has been the topic of most BBQ property convos over recent years but Melbourne is safely (and more quietly) in second position.

While Sydney may have recorded about 64 per cent dwelling value growth since June 2012, Melbourne has posted a none-too-shabby 44 per cent, which I’m sure they’re all very happy with.

The problem with Melbourne’s performance over the past few years, however, is that one part of its market has been making more headlines than it should have and perhaps tainting the overall view.

Like some other capital cities, Melbourne has a big problem with an oversupply of new units and the problem is about to get even bigger.

The huge flurry of apartment development over the past five years has seen supply ramp up to far exceed supply in many inner-city areas. Melbourne has also firmly been on the radar of foreign investors with many buying into new high-rise projects as a way of safeguarding funds outside of their home countries.

The problem now is that many of the developments are coming to completion and valuations are coming in well below contract price, leaving many buyers scratching around to make up the difference.

Many foreign investors, reportedly, have just disappeared so developer on-sales are likely to see prices drop and impact the wider unit market – albeit temporarily until demand catches up with supply again, as is the cycle’s way.

In the meantime, on a much more positive front,  Melbourne’s market had the strongest annual growth of any capital city, according to the Domain House Price Report for the June quarter. This quarter, Melbourne’s median house price has hit a record high of $740,995.

Prices have increased 7.4 per cent over the past year in the city’s bustling property market as buyers and sellers make the most of lower interest rates.

Melbourne unit prices are also on the rise, with the median price increasing to $450,933, which may be impacted in the future due to the new unit supply issues.

There remains strong demand for good properties in the inner-city which, again, is making it more difficult for first homebuyers or first-time investors to get into the market.

While prospective buyers in Melbourne are better off than in Sydney, they still have to stump up with nearly three quarters of a million dollars to buy a median-priced property, which is a big ask.

In hipster suburbs such as Brunswick, Collingwood,  Fitzroy and St Kilda, the chances of Gen Y being able to afford to buy into these locations are extremely small but these are the suburbs in which they love to live.

That’s why so many are consider rentvesting as a strategy and perhaps continuing to rent (and party) in St Kilda, but buying an affordable property in Adelaide instead to get them onto the property ladder somewhere.

Experts say that Melbourne’s property price growth is likely to slow in 2017 ­– but they also said that last year, too – so the best guess would be to say that in the future, demand for city property will continue, and supply will likely struggle to keep up, so if you snooze you may well lose. Buying the best that you can (preferably in one of the major capital cities) is always a better strategy that buying nothing at all, if you ask me.

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Nicola McDougall

Nicola McDougall

Nicola McDougall is an award-winning journalist, property investor, and former editor of Australian Property Investor magazine. She is also a successful lifestyle blogger, likes writing movies "in her spare time", and is a novice surfer tragic.
Nicola McDougall

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