Is Melbourne Still a Good Investment? Christine Williams on Navigating the New Challenges
As Melbourne continues to adapt to the shifting landscape of Australia’s property market, many investors are left wondering whether it’s still a viable city for property investment. Rising taxes, shrinking rental returns, and post-COVID recovery have put the city in a challenging position. However, with over 30 years of experience, Christine Williams, the founder of Smarter Property Investing, offers a unique perspective on how investors can thrive in this complex environment. In a recent episode of the Australian Property Investment Podcast, hosted by Aaron Christie-David, Christine shared her journey and expert advice for navigating the changing market conditions in Melbourne. Watch the full episode here.
In this blog, we’ll delve into the key takeaways from Christine’s episode, including insights into Melbourne’s current property challenges, opportunities for the savvy investor, and long-term strategies for building wealth through property.
Christine Williams: A Journey of Resilience and Investment Success
Christine’s story is one of resilience. Her journey into property investment started 30 years ago, not out of desire but necessity. Following a divorce, Christine found herself rebuilding her financial life with a small settlement. Without realising it, she was engaging in rentvesting—a strategy where she rented her primary home and invested in property elsewhere.
Christine’s initial investments, which included land that doubled in value within 18 months and a small commercial property interstate, gave her the confidence to build a robust portfolio across Australia’s eastern seaboard. Today, Christine’s portfolio stretches across Victoria, New South Wales, Queensland, and the ACT, but Melbourne remains her home turf.
Her personal experiences with investment led her to launch Smarter Property Investing, where she now educates families about the benefits of wealth creation through property investment. According to Christine, her purpose is clear: “Education is the key to building financially fit families.”
Melbourne's Property Market: A Complex and Changing Landscape
Melbourne has long been known for its consistent capital growth and the promise of property appreciation over time. However, recent shifts in the market have made some investors question whether the city still holds the same opportunities it once did.
One of the most significant challenges is the introduction of 53 new or increased taxes under the Labor government, many of which directly impact property investors. The reduction of the land tax-free threshold from $300,000 to $50,000 and the introduction of higher tax rates have made it much more costly to own investment properties in Melbourne. In fact, property investors are expected to contribute $4.7 billion over the next four years to the state’s revenue.
Additionally, recent data from CoreLogic shows that Melbourne has lost its spot as the second most expensive city in Australia, with Brisbane now overtaking it. This decline, combined with controversial energy changes aimed at making properties more renter-friendly, has created a challenging environment for property investors in Victoria.
The Importance of Understanding the “True Numbers”
A major theme of Christine’s investment philosophy is the importance of knowing your numbers. For her, successful property investment isn’t just about purchasing at a good price or securing high rental returns—it’s about understanding the true costs associated with holding a property.
Key Costs Investors Should Consider
Christine emphasises that many investors make the mistake of only considering the purchase price and rental income when assessing a property. However, there are a multitude of expenses to account for, including:
- Land taxes and other property taxes (which are particularly high in Victoria),
- Property management fees,
- Maintenance and insurance costs, and
- The impact of rising interest rates, which have jumped from 2% to 6.5%-7% in just a few years.
Christine is clear: “If the numbers don’t add up, the investment isn’t viable.” Investors must ensure they can comfortably hold the property through fluctuating interest rates and tax increases, while still achieving their long-term capital growth goals.
Opportunities Still Exist in Melbourne – If You Play the Long Game
Despite these challenges, Christine remains optimistic about Melbourne’s long-term potential as an investment destination. The city’s population is projected to surpass Sydney’s within the next decade, largely driven by migration. This population boom, combined with Melbourne’s ample flat land for future development, suggests that the city’s property values will rise again—eventually.
Christine’s message is clear: “If you can afford to hold the property through this challenging period, there is still potential for significant long-term gains.”
However, she advises that investors need to shift their focus away from short-term returns. Melbourne’s current environment is not conducive to positive gearing (where rental income covers mortgage repayments and other costs). Instead, investors must be prepared for properties to require financial input over time, with the expectation that the capital growth will make it worthwhile in the long run.
The Housing Crisis: A Key Factor for Investors
One element that investors must consider is the ongoing housing crisis in Australia. While migration and natural population growth are often highlighted as key drivers of housing demand, Christine draws attention to another, often overlooked, factor: separation and divorce.
Australia has a 53% divorce rate, meaning many couples end up needing two homes following a relationship breakdown. This has a significant impact on housing demand, particularly in cities like Melbourne where rental properties are already scarce. Christine believes that this adds another layer of opportunity for investors, particularly those who are willing to hold property and cater to this growing need for rental accommodation.
Selecting the Right Suburbs: Where to Invest in Melbourne
While Melbourne as a whole is facing challenges, Christine advises investors to carefully select the right suburbs to maximise their returns. Areas like Sunshine and Footscray, once considered “poor cousins” of the city’s more affluent neighborhoods, have seen dramatic growth in recent years. Properties that once sold for $250,000 to $350,000 are now fetching prices of $1.5 million.
Emerging Suburbs to Watch
For investors with smaller budgets, suburbs further from the city center, like Cloverton and Deenside, offer more affordable entry points. While these areas may take 10 to 15 years to see substantial growth, they could provide significant returns for patient investors.
Additionally, understanding the local infrastructure, employment opportunities, and migration trends is crucial. Suburbs with strong long-term development plans, such as the master-planned community of Cloverton, are likely to offer more security for investors looking to ride out the current market challenges.
Can You Afford to Invest in Melbourne?
The ultimate question for investors is: Can you afford to invest in Melbourne right now? According to Christine, the answer depends on whether you’re prepared for the current costs of holding property in the city, including higher taxes, increased interest rates, and the challenge of finding positive cash flow properties.
If you can hold through the tough times, Christine believes that Melbourne still has strong growth potential. “If you’ve done your numbers, and you’re comfortable with the costs, there’s no reason why you shouldn’t invest in Melbourne,” she says.
However, for investors who are uncomfortable with the current environment, other states like Queensland and New South Wales may offer better returns, lower taxes, and more favorable rental yields.
The Future of Melbourne Property Investment
Christine Williams’ insights offer a valuable perspective on Melbourne’s property market. While there are undoubtedly challenges in the current environment, there are also opportunities for savvy investors who understand the numbers and are willing to play the long game.
Melbourne’s population growth, combined with its historic capital growth, suggests that there is still potential for significant returns—if investors are prepared to hold on through the challenges of rising taxes and interest rates.
Ultimately, the decision to invest in Melbourne comes down to an individual’s financial situation and investment goals. For those who can afford to hold their properties through this period, the future may hold substantial rewards.
Are you considering investing in Melbourne? Or perhaps you’re thinking about other areas for your next investment? Reach out to Christine Williams or speak to one of our mortgage brokers. Let us know your thoughts, and don’t forget to subscribe to the Australian Property Investment Podcast for more expert advice from more industry leaders.
