Investing in real estate is an essential strategy for wealth creation, and the Australian property market has long been an attractive option for investors. However, with diverse locations across the country, it’s critical to understand the distinct dynamics of different cities before committing your money.
Melbourne and Perth are two of the most prominent cities for investment in Australia. These cities, while both offering significant opportunities, present investors with very different conditions and outcomes.
This article will delve into the key differences between investing in Melbourne versus Perth properties, focusing on market performance, investor sentiment, rental market conditions, affordability, and future outlook. This will provide a comprehensive comparison to help investors decide when considering these two cities.
Let’s get straight to the point
Investing in Melbourne vs. Perth properties presents distinct opportunities. Melbourne’s market has underperformed recently, with falling house prices and investor sentiment waning due to stricter regulations and higher taxes.
However, it remains a long-term option due to its strong economy and population growth. In contrast, Perth’s property market has experienced impressive growth, with a 24.7% increase in house prices in 2024 and attractive rental yields due to high demand and limited supply.
Perth is more affordable and offers better short-term growth potential than Melbourne, making it a hot choice for investors in 2024. Overall, Perth offers stronger short-term returns, while Melbourne may still be a good choice for long-term investors.
Market Performance
Melbourne’s Market Performance
Once known for its booming property market, Melbourne has seen some challenges in recent years. In 2024, Melbourne’s property market underperformed compared to other capital cities. House prices fell by 1.63% year-on-year, marking a period of stagnation for the city.
Melbourne has also dropped to become the fifth most expensive capital city, overtaken by Brisbane. This shift results from economic factors and the increased cost of living in the city.
For many, these changes have contributed to a decline in the capital growth investors once expected from Melbourne’s property market. However, Melbourne’s real estate market still has strong fundamentals.
It is Australia’s second-largest city, with a robust economy and a high level of population growth, which could potentially lead to more long-term growth in the coming years. Still, the short-term outlook suggests a cooling period before Melbourne begins to see an uptick in property values again.
Perth’s Market Performance
In stark contrast, Perth’s property market has been remarkably upward. Perth has been the leading city in price growth for ten consecutive months, with a year-on-year increase of 24.7% in its median house price as of July 2024.
This surge has placed Perth’s median house price at $808,038, reflecting the market’s strong demand and limited supply. Additionally, Perth recorded the highest annual price increase among Australia’s capital cities at 18.74%.
Perth’s property market has seen consistent growth, driven by external factors (such as housing demand) and internal factors like infrastructure development and increased population growth. This makes it a hotbed for investors looking for substantial short-term capital gains.
Investor Sentiment
Melbourne Investor Sentiment
Investor sentiment in Melbourne has noticeably shifted in recent times. Investors are increasingly pulling away from the Melbourne market, driven by various factors.
Stricter residential tenancy legislation has created challenges for property owners, as new reforms have made it harder to manage properties efficiently. Additionally, the recent higher land taxes, including introducing a new land tax regime in January 2024, have disincentivised many investors.
This regime now affects approximately 860,000 investors across the state, adding another layer of complexity and cost to investment in Melbourne. These changes have caused a marked decline in investor confidence.
Melbourne’s former status as a property investment powerhouse is starting to wane as investors look to other cities for better returns and a more investor-friendly climate.
Perth Investor Sentiment
On the other hand, Perth has become a focal point for investors, particularly in 2024. The city’s rising property values and attractive rental yields have made it an appealing choice for a fresh investment opportunity.
The increased demand for rental properties and limited supply have given Perth’s real estate market a competitive edge over other cities. The sense of optimism in Perth is palpable, with investors attracted to the city’s affordable housing options and growth potential.
Perth’s property market offers investors a chance to tap into both short-term price growth and long-term rental yields, making it one of Australia’s most sought-after cities for real estate investment.
Rental Market
Melbourne’s Rental Market
Melbourne’s rental market has been experiencing its own set of challenges in recent years. Recent reforms, including changes introduced by the Victorian government, have made the rental market less investor-friendly.
These reforms, which focus on strengthening tenant rights and imposing more regulations on landlords, have significantly impacted investor sentiment. Many property owners feel that the changes, particularly those targeting the residential rental sector, are detrimental to their investment returns.
This shift in the rental market has made the environment less attractive for investors. However, Melbourne remains a populous city with a high demand for rental properties, particularly in inner-city areas.
Despite the regulatory challenges, investors may still find opportunities in this segment, especially if they are willing to navigate the changing landscape.
Perth’s Rental Market
Perth, by contrast, has seen a thriving rental market. The high demand for rental properties and limited supply have driven rental prices upward, making it an attractive proposition for investors looking for rental yield.
As of June 2024, the median weekly house rent price in Perth was $650 per week, reflecting the strength of the market and the city’s appeal to renters. Additionally, Perth’s rental yields are higher than in many other Australian cities, with rental returns often outpacing those in Melbourne, Brisbane, and Adelaide.
Investors in Perth can expect to benefit from these attractive yields, especially in the current market conditions where demand for rental properties remains strong.
Affordability
Melbourne’s Affordability
While Melbourne’s property prices have risen significantly over the years, they have become more affordable relative to cities like Brisbane, Perth, and Adelaide. This could present a potential buying opportunity for investors, as the price drop might attract buyers looking for more affordable options.
Despite the market cooling in 2024, Melbourne’s median dwelling value remains below other major cities, making it an appealing option for those seeking long-term growth. However, affordability is relative.
Despite being more affordable than it once was, Melbourne’s real estate remains expensive compared to Perth. This could push investors to consider properties in the latter city, particularly if looking for better value.
Perth’s Affordability
Perth stands out in affordability, especially compared to cities like Melbourne. Perth offers a unique blend of affordability and rising demand, making it an attractive option for those looking for a more budget-friendly lifestyle.
This affordability doesn’t come at the expense of urban amenities, which are abundant in Perth. Investors are increasingly turning to Perth for a more balanced proposition that offers a high standard of living without the high costs seen in Melbourne or Sydney.
Perth’s affordability is one of the key factors driving its growth, with both local and interstate migration fueling demand for housing. As property prices continue to rise, this city offers a window of opportunity for those looking to enter the market before prices escalate further.
Future Outlook
Melbourne’s Future Outlook
While Melbourne’s property market faces challenges, its long-term outlook remains positive. Over the next year or two, Melbourne is expected to play catch-up, slowly recovering from its current underperformance.
Melbourne’s economic strength and strong population growth underpin the long-term stability of its property market. Due to its cultural and economic hub status, Melbourne attracts residents and businesses.
However, Melbourne may not offer immediate returns for investors seeking short-term gains. Those looking to invest in Melbourne will likely need to adopt a long-term perspective, waiting for the city’s market to stabilise and regain momentum.
Perth’s Future Outlook
On the other hand, Perth is projected to continue its growth trajectory shortly. The city’s infrastructure development, combined with rising demand for housing, sets the stage for another dynamic year.
As Perth’s population increases and the economy strengthens, the property market will likely see continued resilience and growth potential. With expanding infrastructure, including new transport links and commercial developments, Perth is well-positioned to capitalise on its current growth momentum.
The rental pressures in the city further support the idea that Perth’s property market will remain one of Australia’s most promising investment options in the coming years.
Conclusion
In conclusion, while Melbourne has historically been a strong player in the Australian property market, its recent underperformance, regulatory challenges, and high costs have led many investors to reconsider their options. For those with a long-term view, Melbourne still holds potential due to its economic strength and population growth, but short-term returns may be harder to achieve.
On the other hand, Perth has emerged as one of the best-performing property markets in Australia, with strong price growth, attractive rental yields, and high affordability. The city presents a singular opportunity for investors seeking both long-term potential and short-term development.
Ultimately, the choice between Melbourne and Perth depends on the investor’s goals. If short-term growth and high rental yields are a priority, Perth may be the better choice. However, for those with a long-term outlook and a willingness to weather some short-term challenges, Melbourne may still present an opportunity for future gains.
Frequently Asked Questions
What Factors Are Causing Investors To Leave Melbourne’s Market?
Investors are pulling out of Melbourne due to stricter residential tenancy legislation, which affects the management of rental properties. Additionally, the new land tax regime introduced in 2024 has discouraged around 860,000 investors, raising concerns about reduced profitability.
Is It A Good Time To Buy Property In Perth?
Given Perth’s strong price growth, affordability, and rising demand, now could be an excellent time to buy property. Investors can take advantage of lower property prices before further price increases and benefit from strong rental returns due to the city’s limited housing supply.
What Are The Risks Associated With Investing In Melbourne?
The risks of investing in Melbourne include regulatory changes, falling property prices, and an uncertain short-term outlook. The cooling market and rising costs could make it challenging for investors to achieve immediate returns. However, those willing to invest long-term may still see growth.
What Are The Future Prospects For Melbourne’s Property Market?
Melbourne’s property market is expected to play catch-up over the next year or two. While the city faces challenges now, its strong economy, population growth, and status as a cultural hub ensure it will likely recover in the long term. However, short-term capital gains may be limited.
Which City Provides Better Rental Yields For Property Investors?
Perth offers more attractive rental yields than Melbourne. With limited rental supply and rising demand, investors in Perth can enjoy higher returns, particularly compared to other cities like Brisbane and Adelaide.