Buying an apartment in Melbourne – what to look out for

9 December 2019

Apartment hunting, while an exciting prospect for many buyers, generally isn’t what many people would call a straightforward process. This can be particularly true in a big and busy city like Melbourne, with plenty of in-demand suburbs to choose from and plenty of variables, pros and cons to navigate.

Even if you already have a clear idea of what you’re looking for in a flat, it can be difficult to find one that ticks all your boxes.

Where in Melbourne should you buy an apartment? 

Two of the main factors which may influence your decision regarding where in Melbourne to buy an apartment are price and liveability. But it may be difficult at first to assess which suburbs strike the right balance between the two. More liveable suburbs could also be incredibly expensive, and cheaper suburbs might not offer your desired level of liveability. 

Perhaps with this issue in mind, People’s Choice Credit Union analysed Melbourne’s suburbs and identified the ones that offer both affordability and liveability when it comes to apartments. Suburbs were assessed on liveability measures such as proximity to the CBD, public transport options, economic prospects, and crime rates

melbourne cbd
Proximity to the Melbourne CBD was a factor in deciding the liveability of a suburb. Credit – Gordon Bell (Shutterstock)

Here are the top 10 suburbs that the analysis identified as offering both liveability and affordability to unit buyers along with their median unit prices.

Suburb Median unit price Liveability rank
Hawthorn East $610,000 3
Murrumbeena $490,500 15
Surrey Hills $727,000 1
Glen Iris $630,000 4
Hawthorn $500,500 20
Avondale Heights $520,000 18
Mont Albert $750,000 2
Elsternwick $602,500 10
St Kilda East $550,175 13
Caulfield North $620,000 9

Source: People’s Choice Credit union

How much do apartments in Melbourne cost?

Melbourne’s median unit price was $558,254 as of October 2019, according to CoreLogic. At the time of writing this makes it the second-most expensive Australian capital city to buy an apartment in after Sydney, which had a median unit price of $720,658. 

But as is the case with any large city, there are suburbs that buck the median value significantly, in both directions. So whether you’re looking for a bargain or a bank-buster, Melbourne has plenty of suburbs offering either affordability or high-end prices. 

For example, slightly further-out suburbs such as Craigieburn and Melton had median unit prices of $310,000 and $385,000 respectively at the time of writing, whereas the inner-city suburb of Toorak had a median unit value nearly triple that of Craigieburn at $924,000. 

If you’re concerned about your budget and whether you can afford to buy in a suburb you’ve got your heart set on, it may be worth seeking the advice of a property market expert. 

Cost considerations when buying an apartment in Melbourne

In order to buy an apartment in Melbourne, you’ll most likely need to take out a home loan. We’ve listed some of the factors you may want to consider when applying for a home loan in Melbourne, but you may want to keep the following in particular in mind:

  • You may require at least 20% of your apartment’s value as a deposit in order to get a home loan for it – if you don’t have 20%, you may not be approved, or you may be charged a higher interest rate and have to pay lender’s mortgage insurance (LMI).
  • If you have a smaller deposit, you may also want to consider the First Home Loan Deposit Scheme as an option (comes into effect in January 2020), as it could help you avoid paying LMI if you decide it’s right for you.
  • If you’ve never bought a property before, you may be eligible for the Victorian First Home Owner Grant
  • You may be required to pay stamp duty on the apartment you buy but keep in mind that exemptions and concessions can apply in some situations. 
  • Owning an apartment will generally mean paying strata/body corporate fees, usually on either a quarterly or annual basis. Body corporate fees will vary by building, but consider any amenities the building offers such as a car park, pool, or gym, as these may come with higher body corporate fees
  • That being said, if your building does have a gym or a car park, consider whether you may stand to save money by making use of them rather than paying for an external car park or gym membership

Is buying an apartment in Melbourne a good investment?

As mentioned previously, Melbourne’s unit market has performed well over the last year to October 31, recording an overall value increase of 3.7% according to CoreLogic.

Additionally, analysis from Property Observer indicates that Melbourne’s apartments are outperforming its houses on price performance. 

While these trends might seem to suggest that the Melbourne apartment market could offer solid investment potential, remember there’s no guarantee that this upward value trend will continue. Consider talking to a financial advisor or a local property expert before making any significant decisions.

Also think carefully about the condition of the property itself. This can be just as important as the state of the local property market when it comes to your investment’s potential and, importantly, your future maintenance costs. 

There are a few steps you may wish to take before buying any apartment which could help you determine its condition and whether it represents good value.  

  • Have a building inspection carried out – whether the apartment is in an old or new building, having a building inspection done can be crucial. An apartment in an old building may come with wear and tear caused by age, whereas an apartment in a new building may come with structural flaws that haven’t been found or diagnosed yet.
apartment inspection
A building inspection could potentially reveal an apartment’s structural flaws. Credit – Pormezz (Shutterstock)
  • Ask a pest inspector to take a look – while a building inspection will identify any damage done by termites or other pests, it may not identify the ongoing presence of such pests. With this in mind, you may want to have a separate pest inspection done for any apartment you plan on buying, or some providers bundle building and pest inspections together.
  • Obtain a strata report – a strata report will tell you the history of the building, including any past, pending, needed, or planned repairs. It will also help you figure out how much you’d pay in strata fees if you bought the apartment.
  • Check resale prices – while market conditions can give you an idea of how your apartment might perform in coming years, you can get more specific by checking how much apartments in the same building have sold for in recent years.

Is Melbourne’s unit market over or under-supplied?

Some commentators are raising concerns about Melbourne’s future apartment supply, with Urban Property Australia warning that this year will mark the lowest growth in apartment completions since 2013. Supply from 2020-22 is expected to be above average, however from 2023 onwards supply levels may slip, with approximately 3,000 apartments pulled from the pipeline. 

Additionally, AMP Capital chief economist Shane Oliver told the AFR that “the number of new units coming onto the market in Melbourne is nowhere near the number of new units coming onto the market in Sydney”.

These concerns, coupled with Melbourne’s constant population growth – the city is expected to increase its population by roughly 10% in the next four years – could potentially spell trouble for Melbourne’s apartment supply levels from 2023 onwards. This could in turn see apartment prices driven upwards if supply fails to meet demand. 

Should I buy an existing apartment or off-the-plan?

The prospect of buying off-the-plan can potentially be an exciting one; artist impressions of what a development will look like plus potentially attractive early-bird prices may well have you ready to buy an apartment that doesn’t exist yet. 

But before you sign on the dotted line, consider the fact that your apartment may not be completed for at least a year or two, if not longer. The market could change dramatically in that time, and you could end up with an apartment worth less than what you paid for it. According to CoreLogic, that was the case for just over half (52.9%) of off-the-plan apartments in Melbourne for the month of August 2019. 

That being said, buying an apartment off-the-plan may still be a suitable option for some buyers. As with any decision involving large sums of money and a long-term commitment, it can be important to consider the potential pros and cons carefully and seek advice from a finance or local property market expert if you need it. 

Can my choice of suburb affect the long-term value of my apartment? 

Before committing to the idea of buying in a specific area you may want to determine the long-term price outlook for the suburb or suburbs you’re considering. Are properties there forecast to increase or decrease in value, or is their future value uncertain?

With this in mind, a little bit of research may go a long way. Taking a look at which Melbourne suburbs are under- and over-performing in terms of property values could make a big difference in the long-term. 

Domain recently identified Blackburn in particular as one of the top 10 best-performing suburbs in the country for unit price growth, with values having increased by more than 24% year-on-year up to August 2019. On the flipside, however, the same report identified Bonbeach and Ivanhoe as two of the 10 worst-performing suburbs in the country for unit price growth, with values in those locations dropping by 22.90% and 22.30% respectively. 

blackburn suburb melbourne
Blackburn was singled out as a particularly well-performing suburb. Credit – Nils Versemann (Shutterstock)

So again, it may be worth looking into a suburb’s history of property value changes before you buy in it – it could be a case of better safe than sorry. You may also want to consider consulting a property expert, as they may be able to offer insight regarding a suburb’s performance prospects.

Will you be able to afford the cost of living in Melbourne? 

Buying an apartment in Melbourne can saddle you with regular and ongoing costs that extend beyond mortgage repayments. This may include rates, utility bills you may have not been responsible for as a renter, the previously mentioned strata/body corporate fees, and home insurance.

These costs will vary depending on where you decide to buy an apartment and the particulars of the apartment in question, but you may want to keep them in mind while assessing how buying an apartment might affect your living costs. 

If you’re planning on buying an apartment in Melbourne, you can compare home loans with Canstar to try and find one that’s right for you.