By John McGrath
In our recently released McGrath Report 2018, we discuss Melbourne’s rising appeal as both an investment hot spot and attractive alternative for Sydney owner occupiers (last week we examined the Sydney property market) who are now priced out of their home market following a phenomenal five-year boom. 

Comparatively affordable property, a strong state economy, top schools and world-renowned liveability are all factors contributing to Melbourne’s record population growth. And there is still room for future property price growth despite exceptional capital gains over the boom.

Taking a two-decade view, Melbourne’s annual compound growth rate for house prices is 8.4%, a whisker ahead of Sydney on 8.2%. Yet Melbourne is far more affordable than Sydney today, with the median house price more than $200,000 cheaper, according to CoreLogic figures.  
In the 12 months to June 2017, Melbourne house prices rose by a solid 9.8% to a median $675,000 and apartment prices rose by 2.0% to $500,000.
Outstanding value for money is helping Victoria remain the fastest growing residential population in Australia, with record numbers of new interstate and overseas residents choosing Melbourne as their home and more investors seeing better potential here.  
Investors are favouring Melbourne for its lower price base, growing population and buoyant economic landscape, with a state budget surplus of $1.2 billion forecast for FY2018 and $22 billion flagged for infrastructure spending.  
Families are also attracted by Melbourne’s affordability as well as its job prospects, high quality schools and lifestyle.
Job numbers in Melbourne grew by 94,100 in the year to July 2017 – more than anywhere else in Australia; and the city has been ranked the world’s most liveable for the seventh consecutive year.  
Schools are a big factor in Melbourne’s population and property price growth. Top public education campuses, including two in the Top 100 World University Rankings, helped attract 65,007 migrants in FY16 alone.  Many Melburnian families are willing to upsize or even downsize their homes in order to enter top secondary school catchment zones in suburbs like Balwyn, Mount Waverley and McKinnon.  
Stock in these suburbs is already squeezed by a trend in empty nesters and retirees opting to stay put in family homes, resulting in fierce competition for limited listings, ongoing price rises and often price ripples to adjacent suburbs.
For example, median house prices in Bulleen rose 13.9% in FY17 as neighbouring Balwyn North became too expensive. Buyers are also finding better value in Cheltenham over next door neighbour Black Rock. 
Stamp duty exemptions for first home purchases up to $600,000 and concessions up to $750,000 are encouraging first home buyers back into the market.
Hot spots include Hoppers Crossing and Werribee in the west, Craigieburn in the north and Pakenham and Clyde in the outer south east. Young buyers on the city fringe will be encouraged by 17 new suburbs offering 100,000 rezoned lots to be released by the end of 2018. 
Demand for Melbourne’s trophy homes is red hot. The city’s record house price reached $40 million in August 2017 when the Toorak home of Mirvac director, Marina Darling sold to a Chinese buyer, smashing the previous record of $26.25 million set in December 2016. 
Melbourne CBD is now the most densely populated region of Australia with 37,754 residents living within 2.4km2. The CBD is most attractive to Chinese buyers, local downsizers and students, and while an oversupply of new apartments is softening prices, it is also creating some opportunity for savvy buyers with a long-term view. 
Victoria remains the most popular state for foreign investors, attracting 43% of residential real estate applications worth $28.06 billion, compared to NSW’s 32% share worth $20.65 billion, according to the Foreign Investment Review Board’s FY16 Annual Report.
We see an exciting future for investors who can expect strong long-term capital gains, as well as owner occupiers who can also expect great growth as they continue to enjoy living in one of the most desirable cities on the planet.