Last Updated Apr 13, 2017 · Written by Rob Schneider
In 2016, the Economist Intelligence Unit (EIU) cited Melbourne as the world's most liveable city for the sixth straight year. The EIU uses healthcare, education, stability, culture, environment and infrastructure to determine what is a liveable city. In 2016, Melbourne scored 97.5 out of 100, beating Vienna, Austria by a percentage point.
If there is a downside to investing in Melbourne, it may be because Melbourne is Australia's second most expensive city for real estate. The median price of houses in Melbourne is a little more than $795,000. This is less than Sydney's $1.1 million, but many home buyers can't afford the median price of a home in Melbourne.
On a brighter note, median prices reflect the highs and lows of real estate. Bargains are still available in Melbourne. You may have to do a few renovations, but you can afford to buy in Melbourne and enjoy its enviable lifestyle.
If money is no object, you can choose an expensive Melbourne suburb. You can expect to pay $2-3 million or more for your home. If you're like most of us, you need to choose your suburbs carefully. You want to be close to amenities, but also want to find a suburb that hasn't yet been discovered or is in the process of being gentrified.
According to real estate statistics, more affordable Melbourne suburbs are between 14 and 17 kilometers from the CBD. This is a short enough distance for commuters, but far enough away for house prices to be lower.
Heidelberg is one example of a more affordable Melbourne suburb. It is about 15 kilometers from the CBD. The median house price in Heidelberg is around $700,000. This is just $100,000 less than the Melbourne median house price, but Heidelberg is a self-contained community with every amenity you could want.
You need to compare prices to get an accurate picture of Melbourne median prices. Ivanhoe is just 4 kilometers from Heidelberg, but the median price of houses in Ivanhoe is $1.75 million dollars.
On the other side of Melbourne, Sunshine is 13 kilometres west of the Melbourne CBD. It is another Melbourne hotspot. The median house price in Sunshine is $670,000. As is the case in other outer suburbs of Melbourne, Sydney and other large cities, suburbs that once were not as desirable as others are becoming renovator's dream suburbs. You can find an old home in Heidelberg or Sunshine. If it needs renovations, it can cost far less than a renovated home, but you don't necessarily have to spend a fortune to renovate.
Sunshine and Heidelberg prices have steadily been rising, but you can find more affordable housing in other areas of Melbourne. For example, in Cranbourne (south-east), Harpers Crossing (west) and Wyndham Vale (West), the median price of houses is still below $450,000. These areas are between 30 and 50 kilometers from the Melbourne CDB, but you can reach the CBD in under an hour if you use the new toll routes.
Homes in Melbourne are relatively expensive. As a first time homebuyer, you may not be able to afford to buy a home unless you find a renovator's dream home. Unit prices are lower, but even here you need to choose your location. For example, the median price of units is:
$563,500 in Melbourne
$546,000 in Heidelberg
$515,000 in Essendon
$480,000 in Sunshine
Bear in mind median prices don't reflect the lower priced units you can find in Melbourne. But what if you want to buy a house, but only have an apartment budget?
The Mornington Peninsula used to be a retirement haven. Times are changing and more families are moving to the Mornington Peninsula. Although the heart of the Mornington Peninsula is 75 kilometers from Melbourne, new freeways have made it possible to reach the peninsula in around an hour.
In some areas of the Mornington Peninsula, the median house price is less than the median price of units in Melbourne. Some examples include:
Median prices overlook many details about housing. While median prices are helpful, they overlook many details about housing. For one thing, they are median prices only and you can find houses for $750,000 in Rosebud, Tootgarook or Rye. That means you can also find lower priced houses as well. Median prices don't tell you the size of the block or the condition of the house, either.
Blocks in many parts of the Mornington Peninsula tend to be larger than a block of land in Melbourne. You can have a front and back yard and perhaps even install a swimming pool. You wouldn't find a house on a large block of land in Melbourne for anything close to the price of a house on a big block in Rosebud or Tootgarook.
Many people move to the Mornington Peninsula for the affordability of houses, but they move there for other reasons as well. The Mornington Peninsula has a more relaxed lifestyle than Melbourne and beaches are close to even modestly priced homes.
Your budget will determine the cost you pay for real estate, but you should also consider the real estate you buy as an investment. Where will your investment grow the fastest? When will the cost of real estate top out in a given location? There can be guesswork involved, but a look at trends can tell you a lot.
Melbourne real estate has been rising rapidly. This is because it is a desirable city to live in and is growing by 100,000 new residents per year. Some of the fastest growing suburbs in Melbourne are:
St Kilda East real estate prices have risen 31.79 percent over three years
Box Hill and neighbouring suburbs have experienced a growth of 68.38 percent over three years
Ashwood has experienced a real estate growth rate of 53.93 percent over three years
High growth rates do not always equate to continued growth. Some real estate pundits predict the growth will top out in 2020, but not all agree with this assessment. The low Australian dollar is attracting overseas investors. That may account for some of the growth.
The Mornington Peninsula has experienced real estate growth, too. It has not been at such a frantic rate as some Melbourne suburbs, but in some areas, prices have risen steadily. Parts of the Mornington Peninsula, prices have increased dramatically:
Sorrento experienced a 17 percent rise in real estate prices in a single year
Blairgowrie real estate rose 15 percent in a single year
Dromana prices went up by 21 percent in a year
Because prices on the Mornington Peninsula are still low compared to Melbourne, some real estate pundits believe it is one of the best areas to invest in. In October of 2016, the Melbourne Sun published an article urging property investors to target the Mornington Peninsula, Epping and Sunshine. The article cited the "daggy" image of the Mornington Peninsula, but pointed out that its image was changing as more families move to the peninsula.
You will have to do your homework when investing and renovating in Melbourne. You will first have to find an affordable suburb. If one suburb is too expensive, try a nearby suburb. Often, one suburb becomes gentrified before a nearby suburb and you may find a bargain within a short distance. It's a good bet your purchase will increase in value as others discover the suburb.
Then you will need to decide if your purchase is a good investment. If you can find a renovator's dream house, you may find the best investment of all. For tips on finding that home, read 7 Tips for Buying the Renovator's Dream. You may have to look for your renovator's dream home, but it will pay off in the end. You will have an affordable home that will increase in value over the years.