How to invest in Melbourne: Strategy, timing, and the suburbs investors are quietly targeting
Melbourne’s subdued price growth and relative affordability are drawing attention from seasoned property investors looking to rebalance their portfolios ahead of expected interest rate cuts.
Steve Ash, founder of Property Strats, said the city’s recent underperformance made it attractive to long-term investors seeking portfolio diversification across markets.
“Melbourne’s out of kilter,” Ash told The Smart Property Investment Show. “If I look at the one-year growth rate, Melbourne is minus 1.7 per cent. Adelaide is at the top, over 10 per cent.”
This divergence, the investor explained, is important to having a balanced portfolio, where investors are “treating those individual areas like asset classes in a fund.”
While Melbourne has lagged in the recovery compared to Brisbane and Adelaide, Ash believes the next phase of the rate cycle will support demand in Australia’s largest capital cities.
“With rates coming down, it’s generally Sydney and Melbourne that do well,” he said. “So now’s the time if you take that sort of model to actually go a little bit more into those and increase your exposure to them.”
Yields in Melbourne have also strengthened – a key consideration for investors managing serviceability in a high-interest environment.
“Right now, we’re around about that 4 per cent,” he said. “Historically it’s been in the twos and threes.”
But Ash warned investors targeting multiple properties in the city to factor in rising borrowing costs.
“If you buy three of those, it’s going to hurt,” he said. “You won’t be able to buy much more unless you’ve got high-paying jobs.”
To that end, he recommends combining growth assets with cash flow properties to maintain borrowing capacity.
“Maybe get a couple of these, then the third one has to be a cash flow asset to wipe out a little of that negative cash flow,” he said.
Ash identified several Melbourne suburbs – including Frankston, Carrum Downs and Seabrook – as offering a blend of value and long-term growth potential.
But Victoria’s investment landscape isn’t without risk. Ash flagged tightening compliance requirements as a growing issue for landlords.
“If you’re not compliant, you can’t rent that property out,” he said.
He also cautioned investors to review how they structure their purchases in light of Victoria’s land tax settings.
“Buying in joint names, obviously should never do it,” he said. “Talk to your accountant. It’s really thinking about structuring and what entities to buy in.”
Ash’s advice for those entering the Melbourne market is to keep strategy front of mind.
“Look for a mix of assets with land content,” he said. “Maybe a bit tired, maybe have that potential for development later on, if that’s what you choose to do. But you’ve got options there.”