Victoria Property Forecast - Economic Growth and Rising Prices

Victoria and Australia Property Market and Economic Forecast

Recent reports underscore a positive outlook for the property market in Victoria, particularly in Melbourne. The data collected highlights Melbourne as the city with the highest potential for economic growth and property price increases, reinforcing investor and buyer interest in the region.

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Population Growth in Melbourne

According to the federal Treasury’s Centre for Population, Melbourne’s population is projected to rise from 5.21 million this year to 6.45 million by 2034, surpassing Sydney, which is expected to grow to 6.36 million. By 2031-32, Melbourne is anticipated to become Australia’s largest city (1). The "Victoria in Future 2023" report indicates that Victoria will continue to be the fastest-growing state, with its population projected to reach 10.3 million by 2051 (2). However, housing industry groups express concerns that the Victorian government will struggle to meet its target of building 800,000 new homes over the next decade. In 2023, only 51,045 new dwellings were approved— the lowest number in ten years—signifying a potential housing crisis if not addressed (3).

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Market Trends and Predictions

Deloitte forecasts a boom in the residential property market starting in 2025, driven by factors such as limited supply, high immigration rates, and an expected reduction in interest rates towards the end of 2024. Oxford Economics places Melbourne third in anticipated price growth, following Darwin and Perth, although challenges in those cities—such as high building costs and supply issues—may hinder their prospects.

Expected property growth over the next three years (by June 2027) indicates:

Sydney: Median price $1.93M, Total price growth 18% (houses), 22% (units)

Melbourne: Median price $1.28M, Total price growth 21% (houses), 20% (units)

Brisbane: Median price $1.21M, Total price growth 19% (houses), 23% (units)

Melbourne is predicted to experience the highest house price growth in 2025, with a notable increase of 6.5% (4). Experts point to Melbourne's current affordability relative to Sydney and its potential for future appreciation due to population and supply dynamics (5).

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Land Tax and Insurance Costs Comparison

When comparing land tax across states for a property valued at $2 million, Victoria's tax obligations align closely with those of other major states. For individual owners, the estimated land tax in Victoria is $15,150 annually. Notably, land valued under $300,000 incurs a significantly lower tax of $975 per year (7).

Average home and contents insurance premiums also reflect the affordability of property in Victoria, with average costs lower than those in some other states. For example, the average annual home and contents insurance in Victoria is approximately $1,940, translating to about $5.31 per day (8).

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Economic Outlook

Victoria's economy is projected to grow at a robust rate of 2.5% per annum, surpassing the national median of 1.75%. This economic strength is expected to bolster the property market, particularly as interest rates are anticipated to decrease in late 2024, enhancing credit availability and consumer confidence (9,10)

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Rental Market Dynamics

As Melbourne’s population continues to rise, rental prices are also climbing, driven by high demand and limited supply. This tight rental market is characterized by low vacancy rates, further indicating a need for more housing to meet the growing population.

In conclusion, the outlook for Victoria's property market remains optimistic, with significant growth potential driven by population increases, economic resilience, and favorable market conditions. Investors and homebuyers should remain attentive to these trends as they shape the future landscape of the Victorian property market.

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References:

https://www.smh.com.au/politics/federal/less-harbour-more-yarra-how-the-political-centre-of-power-is-moving-20231222-p5ete3.html

https://www.planning.vic.gov.au/guides-and-resources/Data-spatial-and-insights/discover-and-access-planning-open-data/urban-development-program/victoria-in-future

https://www.afr.com/politics/approvals-show-victoria-s-home-building-target-is-miles-off-industry-20240226-p5f7rr#:~:text=This%20capped%20off%20a%20total,Labor%20was%20elected%20in%202014

https://kpmg.com/au/en/home/media/press-releases/2024/06/house-prices-to-rise-gradually-over-next-18-months.html

https://www.afr.com/property/residential/why-would-anyone-want-to-invest-in-melbourne-s-housing-market-20240509-p5jba8

https://dwjohns.com.au/2024/02/18/how-property-taxes-across-australia-could-impact-you/ - Image 4

 https://www.e-business.sro.vic.gov.au/calculators/land-tax

https://www.canstar.com.au/home-insurance/home-contents-insurance-cost/

https://upaustralia.com.au/research/q2-2024-australian-economic-overview/

 https://upaustralia.com.au/research/q2-2024-victorian-economic-overview/

https://kpmg.com/au/en/home/insights/2024/06/residential-property-market-outlook.html

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