These Melbourne Suburbs Are Rising While the Rest Fall

In this episode of the Follio Property Podcast, hosts Lachlan Delahunty and Reece Beddall deep-dive into the Melbourne property market and look back at their Melbourne property market predictions from the prior 12 months, unpacking how media reports claiming double-digit drops may miss the bigger picture, and go deeper into how owner-occupier-dominated suburbs are outperforming more speculative markets and why getting property investment advice from a company such as Follio can make a large difference. 

Key Takeaways & Market Insights

• Markets Within Markets Beat Headlines: While the media reports Sydney prices falling by up to 15% and Melbourne 10%, there are micro markets within Melbourne that still record strong growth. 
• Owner-Occupied Dominance Preventing Crashes: Suburbs with majority owner-occupied density (such as Berwick, Sunshine West, and Ferntree) are resisting downturns, whereas investor-led markets are flatlining. 
• Outer-Fringe Supply is Depreciating in Melbourne: House and land housing in outer-fringe newer suburbs is exposing investors to depreciation due to continuous competing supply. 
• $650-850k Property Sweet Spot: Borrowing capacity has dropped, driving intense investment competition with owner-occupiers and first-home buyers now in the same price bracket. 

Why Media Headlines are Missing Micro-Market Price Growth

Media coverage by media outlets is reporting the scary market and property depreciations but isn’t mentioning the growth in micro-markets, potentially creating a false narrative to those not in the know or using a property advisor. Claims of 10 to 15% property drops in Melbourne and Sydney fail to capture performing sub-markets: 

“Albeit Headline News would read that Sydney’s coming off potentially 15%, Melbourne’s coming off 10%, and the rest of Australia’s house prices are falling.” – Lachlan Delahunty

“There are markets within markets that are increasing in value and doing extremely well above their long-term growth rate in times of uncertainty. It’s {about} understanding that there are markets within markets, and that’s what we had to highlight. “ – Lachlan Delahunty

Landlocked Owner-Occupier Suburbs vs. Speculative Investor Belts 

The ratio of investors to owner-occupiers in a suburb serves as a buffer against capital loss during economic uncertainty. Landlocked Melbourne suburbs are proving resilient against the outer markets, which are flatlining. Lachlan Delahunty explains why investor saturation signals a major structural warning: 

“There was high saturation in investment activity even prior to the budget {announcement}. Typically 70% or more of transactions were investor-based {prior}, which is a red flag.” – Lachlan Delahunty

“Opposite to that, what we want in the market versus the other suburbs we mentioned to buy is typically 80 to 90% or more owner-occupiers versus investors.“- Lachlan Delahunty

Why Outer-Fringe House and Land Packages Face a Resale Penalty

Investing in newly constructed house and land packages in outer fringe suburbs in Melbourne growth corridors is exposing investors to oversupply and competition and early-stage depreciation. 

Investors are cautioned to reconsider house and land products at this time. 

“So anyone who bought 12 months ago had probably bought a new-built product {house and land package}, and this year there’s going to be a new range of new-built products which is going to put the values of the prices of those who bought 12 months ago down.” – Lachlan Delahunty

“Obviously, they reduce. That’s the whole philosophy of buying a new product. It depreciates in value, and that’s really important to understand.” – Lachlan Delahunty

Core Real Estate Drivers Withstanding Economic Shocks

Even with unexpected economic changes such as increased interest rates, global conflicts such as the US-Iran war, and changes to tax laws, core location drivers are preserving property values. 

Local owner-occupier demand by buyers for local lifestyle amenities and schooling in popular undersupplied suburbs protects capital values. 

“The fundamentals of property are shelter, location and lifestyle – that supports that, and what I mean by that is people, through good times or bad times, particularly in uncertain times, will revert back to the need for shelter first and foremost and for location. “ – Lachlan Delahunty

“Location with proximity to friends, family, schools, and amenities, and that sort of highlights the importance, and when we did these predictions, we did not predict a number of those macro events {that occurred}.” – Lachlan Delahunty

The $650,000 to $850,000 Melbourne Investment Sweet Spot

Legislative changes and changes to the market environment have compressed borrowing capacity across the board, meaning all active buyers are now competing in a highly competitive price bracket, meaning buyer demand in certain price corridors is converging:

“If we had had this conversation 12 months ago, a lot of people from an investment-grade asset selection would have been looking close to a million, whereas now they’re looking in that 650 to sort of 850 range.” – Lachlan Delahunty

“Do you see that as the sweet spot in terms of an investment grade budget in Melbourne at the moment?” – Reece Beddall

“Without a doubt, and it’s our job to do the best of our abilities with some forecasting, Reece… people’s budgets for investing have been reduced because of serviceability due to interest rates, but also because you can’t claim negative gearing. So you’ve got three markets plus a typical owner-occupier market all competing in a similar submarket.” – Lachlan Delahunty

Why Do Investor-Saturated Outer Fringe Suburbs Stagnate in Growth?

“High saturation investment activity: typically 70% or more of transactions were investor-based, which is a red flag. There’s very little infrastructure. There’s ample supply that can be built out over the next 3, 5, or 10 years.” – Lachlan Delahunty

How Does Asset Selection Impact Overall Investment Performance?

“You can get 70-80% of it right in the right macro market at the right time, but that last, you know, 20 to 30% can be a half a million dollar difference when the market goes on a run.”  – Lachlan Delahunty

Future Predictions & Market Outlooks

• Sub-$1M Market Surge: We predict the sub-million dollar price bracket will experience strong competition and outperformance due to compressed market borrowing limits. 
• Shift to Cash-Flow Neutrality: Negative gearing strategies are no longer sustainable; future portfolio growth will require cash-flow-neutral assets. 
• Outer-Fringe Depreciation Exposure: Outer fringe suburbs will be dominated by new house and land developments facing flatlined growth over the next 3 to 10 years. 

Take Control of Your Property Strategy with Follio

Navigating the increasingly changing property market in Melbourne and Australia requires moving beyond the news headlines and relying on detailed research, data and property investment advice. 

At Follio, our advisory team analyse our clients’ portfolios, reviewing risk, cash flow and securing high-grade assets, leveraging our in-house PropStac data to get our clients the best investment results. 

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