What suburbs should you invest in Melbourne in 2021?
Repeated lockdowns have undoubtedly impacted this market significantly over the last year, but there is cause for optimism with performance over the most recent quarter indicating a recovery is underway. Domain reports that house prices advanced $45,000 over the March quarter to $974,397 – with every indication they will break the $1million median soon.
Any investor should start by shortlisting the Melbourne suburbs with the highest potential for capital growth in the years ahead. The first step is to identify the key indicators to look for when you begin your research.
Suburbs with high growth potential: What to look for
Start your investment property research by shortlisting Melbourne suburbs with as many as the following factors present:
- Rising property values
- Gentrifying community
- High levels of renovation
- Rising clearance rates at auctions
- A decrease in the days on market (DOM) metric
- Rising rental yields
- Low vacancy rates
- Large infrastructure works planned in or near the area
- Job creation initiatives planned in the area
No suburb is likely to have all these conditions, but the more the better. Before we look at individual suburbs with solid investment potential, the recent performance of the Melbourne market is worth summarising.
Melbourne property market performance 2021
All dwellings (YTD): +8.1%
Unlike the Sydney market which recorded double digit growth, Melbourne’s overall dwellings were in single figures, up +8.1% for the year to date (YTD). In May it grew +1.8% to bring it to +5.5% for the quarter with a median dwelling price of $740,562. This is some $200k less than Sydney’s median dwelling value – which is a positive for anyone looking to purchase property, as you get more for your money.
Despite the obstacles of this COVID era, property values are still at record levels in Melbourne. This includes units, which continue to underperform houses – but despite this are at record highs, up a +2.2% over the recent March quarter for a median value of $568,793. Property analysts CoreLogic believe the ‘persistently strong demand for housing’ is being driven by improving economic fundamentals, particularly low interest rates which are boosting consumer confidence.
Top 5 suburbs to invest in Melbourne 2021
Now let’s look at five Melbourne suburbs worth investing in 2021, each with very different character, drivers and dynamics.
1. Mornington, 3931
Median house: $980,000
Median unit: $681,250
The shift to remote work and the ‘flight from the city’ phenomenon that has characterised the COVID era has seen buyers seek out locations like the Mornington Peninsula. This family-friendly suburb is far enough away from the hustle bustle, but still close enough to hop on a motorway or public transport to enjoy the bright city lights.
Median property prices over the last year range from $980,000 for houses to $681,250 for units. Domain’s House Price Report (March 2021) identified this as a high growth area, and a ‘standout performer with house prices leaping +16.6% compared to last year’. There is a mix of properties in Mornington, with older weatherboards cottages, designer units, apartments and newer double storey houses.
According to realestate.com.au:
- Houses in Mornington rent out for $510 p/w with an annual rental yield of 2.7%
- Units rent for $470 p/w with a rental yield of 3.6%
2. Box Hill, 3128
Median house: $1,540,440
Median unit: $548,500
According to property analyst and investor Michael Yardney you should look for, ‘…properties close to the city’s CBD (but not in it) and in bayside suburbs close to the water’, which he believes, ‘…will increase in value more quickly than other properties and suburbs’. Box Hill, 14 kilometres east of the city’s CBD, definitely ticks this ‘box’. It has a mix of modern apartment complexes and older Art Deco inspired homes with a strong multicultural flavour, decent transport links and lots of opportunities to eat out.
Median property prices over the last year in Box Hill range from $1,540,440 for houses to $548,500 for units. According to realestate.com.au:
- Houses in Box Hill rent out for $450 p/w with an annual rental yield of 1.5%
- Units rent for $390 p/w with a rental yield of 3.7%
3. Aberfeldie, 3040
Median house: $1,717,500
Median unit: $846,000
Aberfeldie is nine kilometres north-west of the Melbourne CBD bordering Essendon, while the south of the suburb sits on the banks of the Maribyrnong River. Median property prices over the last year range from $1,717,500 for houses to $846,000 for units, and over the last five years the suburb has seen a compound growth rate of 6.3% for houses and 9.5% for units.
According to realestate.com.au:
- Houses in Aberfeldie rent out for $620 p/w with an annual rental yield of 1.9%
- Units rent for $463 p/w with a rental yield of 2.8%
4. Bentleigh, 3204
Median house: $1,490,000
Median unit: $653,750
Bentleigh is 13 km south-east of Melbourne’s CBD, with Brighton and its beaches to the west. It is a family-focused suburb with good access to parks, schools, shopping and public transport. In terms of accommodation, expect to find a mix of older period homes, California bungalows and newer apartments. For schools, the suburb is in the catchment for the much sought after McKinnon Secondary School.
Median property prices over the last year in Bentleigh range from $1,490,000 for houses to $653,750 for units. According to realestate.com.au:
- Houses rent out for $625 p/w with an annual rental yield of 2.2%
- Units rent for $455 p/w with a rental yield of 3.6%
5. Kensington, 3031
Median house: $1,066,000
Median unit: $535,000
Just 4km from the CBD but with a village feel? Correct, that is exactly what the suburb of Kensington is all about with a thriving arts scene, cafe culture and access to green space. In terms of properties, there is a real mix of period homes, newer developments and warehouse conversions.
Median property prices here currently range from $1,066,000 for houses to $535,000 for units, while the suburb has recorded a compound growth rate of 5.0% (houses) and 3.8% (units) over the last five years. According to realestate.com.au:
- Houses rent out for $580 p/w with an annual rental yield of 2.8%
- Units rent for $400 p/w with a rental yield of 3.9%
Thinking of selling to take advantage of current house price growth? Then get in touch with Ash Frenken (CEO & Principal) at propper on 0409 397 173 or firstname.lastname@example.org for a no obligation appraisal and expert advice about your circumstances.