Worst Areas in Melbourne 2025 - with Simon Loo, Oliver Cheung, Junge Ma, Dawn Fouhy, & Todd Sloan

TL;DR

Experts reveal Melbourne's worst investment suburbs for 2025.

Transcript

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Key Insights

• Buying property in Melbourne's blue-chip suburbs may not guarantee growth due to low yields and high holding costs, making it difficult for investors to expand their portfolios.
• Areas near Melbourne Airport, like parts of Dallas and Coolaroo, face restrictive zoning laws that limit development potential, impacting long-term investment returns.
• Rockbank's high building approval rate and 14% vacancy rate suggest an oversupply issue, making it a risky choice for investment despite its new developments.
• House and land packages in areas like Rockbank often involve higher construction costs, leading to lower returns as more money is spent on depreciating assets.
• Broadmeadows, despite its proximity to the city, suffers from affordability issues for local demographics, with a high percentage of investor purchases driving short-term growth.
• Investing in areas with high investor activity, like Broadmeadows, can lead to market volatility and potential cash flow issues due to oversaturation.
• Future gentrification in areas like Broadmeadows is uncertain, with limited owner-occupier appeal and high investor presence hindering sustainable growth.
• Investors should prioritize areas with strong owner-occupier demand and affordability to ensure long-term portfolio growth and stability.

Questions & Answers

Q: Why should investors avoid blue-chip suburbs in Melbourne?

Investors should avoid blue-chip suburbs in Melbourne because they typically offer low yields and high holding costs, which can significantly limit an investor's ability to grow their portfolio. These areas often require substantial financial backing to maintain, and the potential for significant capital growth is often limited by the already high property values.

Q: What are the zoning restrictions near Melbourne Airport that affect property investments?

Near Melbourne Airport, particularly in areas like Dallas and Coolaroo, zoning restrictions include the Melbourne Airport Environmental Overlay. This overlay imposes limitations on development due to noise concerns, requiring additional compliance costs for building projects. These restrictions can limit development potential and reduce the attractiveness of these areas for long-term investments.

Q: Why is Rockbank considered a poor investment choice?

Rockbank is seen as a poor investment choice due to its high building approval rate, which indicates an oversupply of properties. This oversupply can lead to high vacancy rates, currently at 14%, and increased competition among landlords, resulting in lower rental yields. Additionally, the focus on new developments means a higher proportion of investment goes into depreciating building costs rather than appreciating land value.

Q: What are the risks associated with house and land packages in Melbourne?

House and land packages in Melbourne, particularly in areas like Rockbank, pose risks due to increased construction costs, which have risen by 35% compared to five years ago. This means a larger portion of the investment is tied up in the building, which depreciates over time, rather than the land, which appreciates. This can lead to lower overall returns on investment.

Q: How does the investor-driven market in Broadmeadows affect its long-term growth potential?

The investor-driven market in Broadmeadows can lead to short-term price increases but poses risks for long-term growth. With 60-80% of buyers being investors, there is a high risk of market volatility and potential oversupply. The local demographic's limited affordability further challenges sustainable growth, as the area lacks strong owner-occupier demand to stabilize and drive long-term appreciation.

Q: What impact does a high investor presence have on gentrification in areas like Broadmeadows?

A high investor presence in areas like Broadmeadows can hinder gentrification, as it limits the influx of owner-occupiers who typically drive neighborhood improvements and increased property values. Without a significant owner-occupier base, the area may struggle to attract the necessary amenities and infrastructure improvements needed to support long-term growth and desirability.

Q: Why is affordability a critical factor in selecting investment properties?

Affordability is crucial in selecting investment properties because it ensures that the local demographic can sustain demand for housing, supporting stable rental yields and property values. Properties that are affordable for local buyers and renters are more likely to attract owner-occupiers, who contribute to neighborhood stability and growth, ultimately enhancing long-term investment returns.

Q: What should investors prioritize when choosing areas for property investment?

Investors should prioritize areas with strong owner-occupier demand, affordability for local demographics, and potential for sustainable growth. These factors help ensure stable rental yields, lower vacancy rates, and long-term appreciation. Avoiding areas with high investor activity and oversupply risks can also protect against market volatility and enhance portfolio growth.

Summary & Key Takeaways

• Melbourne's blue-chip suburbs may not offer the best investment opportunities due to low yields and high holding costs, which can limit portfolio growth. Simon Loo advises avoiding these areas despite their reputation.

• Oliver Cheung highlights the zoning restrictions near Melbourne Airport that impact development potential in suburbs like Dallas and Coolaroo, making them less attractive for investors looking for long-term gains.

• Junge Ma points out the risks of investing in Rockbank's house and land packages, citing high vacancy rates and oversupply issues that could hinder both rental yields and property value appreciation.