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Why The Next Property Boom In Australia Will Be In Melbourne! · The Follio Property Podcast

• 0:00
  Melbourne is a better opportunity to invest than Perth. Perth's property growth in the last five years, 100% increase. Brisbane and Adelaide doing 45% in two and a half years. Perth doing 27%. Sydney doing 36%. We will see double digit growth in Perth next year. Short term fundamentals are better for Perth. But long term, Melbourne's a better bet.
• 0:21
  Looking at the Melbourne data, in the last nine months, they've seen their listings go from 19,000 to 14,000. We know what decrease in listings has done into the Perth market over the last two years. Affordability standpoint, Perth and Melbourne are the most affordable capital cities in Australia. Adelaide is now the second most unaffordable market in the country.
• 0:46
  You're listening to the Folio Property Podcast. I'm Rhys Burtle and I'm here each week with my co-host, Lachlan De La Hunty. Now, Lachlan, we've been talking about 5,000 subscribers, but I don't think anyone listens to the start of this, do they? No, I told you, no one cares. No one cares. So I'm going to make a bold claim here. The next 500 subscribers that we get, that comment that they've just subscribed, that
• 1:09
  you'll do an introduction meeting with them. Three at random. Is this like a Christmas bonus? This is a Christmas bonus. I don't do initials and all portfolio reviews anymore. But for the three at random. Three at random. Okay. Lachlan Delahunty Christmas special. This will take place for a meeting in January. Correct. I would like a couple of weeks off. So thank you, Rhys. Okay, let's do it. Let's do it. Okay, let's kickstart. Last episode of the year. Firstly, shout out. Thank you to everyone. Support's been amazing over the last seven months. Top 40.
• 1:36
  in the podcast charts now? Top 40 on Spotify business charts. Lock them on top 10 next year. So guys, please keep watching, keep viewing. We want to get to top 10 next year. But yeah, thanks for your support so far. We've got some big plans in 2026. Exciting plans, big guests, more data insights, more content to educate, calling out the spruikers.
• 1:57
  Yeah, definitely. I think we want to hear from you guys what you want to see in 2026 on those comments. This is just Rhys and I bashing our heads together to think, how can we add value to mum and dad investors out there in Australia? If there's anything you want to hear more of or less of, if you're sick of me talking about Rhys's haircut, then we can stop sharing those sort of anecdotes. But no, seriously, anything or anyone you want to see, us to what you want us to do, we're going to try to get out there and bring you sort of more...
• 2:24
  live and interactive content next year and double down on the data through PropStack. So I want to hear more from you guys. Awesome. As we wrap up 2025, I want to talk about six key data insights that explain exactly where the Melbourne property market is heading in 2026 and comparing that against other markets such as Perth.
• 2:45
  But this came about recently, right, Rhys, because everyone's like, well, why is this a topic? We got questioned pretty hard at a seminar that I did at the end of last month talking about that I personally believe now that Melbourne is a better opportunity to invest than Perth. And this was a Perth localised seminar. And we know Perth people are very, very passionate and they think the market's going to run forever.
• 3:08
  But I just had to revert them to the data. So this conversation today has been off the back of that seminar because I challenged quite a few people in the room because Perth people are naturally protective of the Perth market. And so am I. I'm Perth local now. So let's get through to the stats as to why I think Perth is the better bet in 2026. Melbourne is the better bet than Perth into 2026 with the caveat that I do believe Perth will run harder and probably significantly harder in 2026. We will see double-digit growth in Perth next year.
• 3:37
  The short-term fundamentals are better for Perth, but long-term, Melbourne's a better bet. Are investors now buying Perth at the top of the cycle? Top of the cycle. Investment cycle as well. You're a brave man to call it, the top or the bottom of the cycle. What I can tell you is we're much closer to the top than we are the bottom. And on a property clock, I think we're between, it's going to sound like a broad range, somewhere between 10.30 and 11.30.
• 4:06
  and probably closer to 11.30. So yes, we are getting closer to the top of the cycle, I believe, based on the data that we track. But what does that mean for Perth 2026? We'll do double-digit growth next year. All right, let's get into some of these key data sets that we want to speak about today. First one we've got here is the medium house price chart. I don't know if you want to talk through this one, Lachlan. So looking at this, we can see Perth's property growth
• 4:34
  in the last five years, 100% increase. Melbourne's property growth in the last five years, 5% increase. However, Melbourne historical long-term growth is at 7% and Melbourne's stagnation, this is the longest stagnation period in the last 30 years for Melbourne. Do you want to talk us through this graph and why this is painting a picture that there's an opportunity in Melbourne over Perth?
• 4:58
  So Melbourne long-term is the most consistent market in Australia, including Sydney. You're like, what do you mean? It doesn't make any sense. Sydney's gone on a run. Since data was released in the late 70s that we can track it back to, consistently Melbourne's ran at 7% year on year. And then if you look at the period of time between...
• 5:19
  The data set that I'm showing here, December 2000, right through to 2020, when COVID hit, it was running closer to 8% year on year. So by far the most consistent with very little deviation or stagnations. So year on year...
• 5:36
  Your property price in Melbourne's going up by 8%. And that's, you know, you just don't get more consistent than that. COVID hits, markets across Australia go through a boom. Brisbane and Adelaide doing 45% in two and a half years. Perth doing 27%. Sydney doing 36%. The regionals off the charts doing like 40, close to 50, sometimes 60% in that period.
• 5:57
  little old moment does 15% so by far the biggest underperformer and then since then it's come off so that 5% growth you're talking about
• 6:08
  Most of that occurred during that COVID period. And then obviously since then it's recorrected. So for the first time in a long time, certainly since I've been alive. Generational. Yeah, yeah. Melbourne is affordable. Like there's never been an opportunity to invest in Melbourne. And people always find reasons not to invest in the market when it's early in the cycle. For Perth, it's like that Perth speculative market
• 6:33
  And when we talk about speculative markets, 2.2 million to people, so it's not a speculative market. But in 2009 and 2020, you couldn't make money in the Perth market. In 2015, you couldn't make money in the Adelaide market since gone up by 150%. So people at the bottom of the sock will always find reasons to disregard a market. And Melbourne, what are those? Let's call them out for what they are. Government's got no money. Crime.
• 6:59
  Crime rates through the roof. It's never going to recover. Immigration. Immigration's causing all these issues. Land tax. Pets. How could we forget about land tax? Land tax. That's the number one comments we get. Yeah, land tax is just ridiculous. And pets, tenancy rights. You can't stop someone renting a property if they've got a pet because tenants now have got more rights than landlords. There's all these headwinds in Melbourne. It's a terrible time to invest according to the public eye.
• 7:28
  But at the bottom of the cycle, that's what people, you hear what you want to hear. And at the top of the cycle, let's look at a market that I believe is at the top of the cycle, Adelaide, certainly more advanced than Perth. It's the opposite. Everyone hears what they want to hear. Oh, there's migration coming. No, it's negative, interstate migration. Everyone's leaving there because there's nothing to do in Adelaide. Excuse any Adelaide listeners. I love it. Glenelg's a beautiful place.
• 7:49
  Brisbane, the Olympics are coming. That's going to bring heaps of jobs and heaps of activity. The Brisbane market, the Gold Coast market, it's going off the charts. So at the top of the cycle, everyone just hears what they want to hear, but the same is at the bottom of the cycle. And at the moment, we are at the bottom of the cycle. Well, 12 months ago was the official bottom of the cycle for Melbourne. So people will only hear what they want to hear, and they'll only want to hear those things, land tax.
• 8:12
  crime and the government's completely ruined and has no money so it can't go up in value this is an international city and now our largest population center in australia has never been as affordable it is now in comparison to all the sub markets in australia it's the most affordable it's ever been
• 8:32
  And we are the early signs of recovery. So month on month since February, there's been, although small increments when you're comparing against Sydney, Perth, Adelaide, Brisbane, it has had month on month increase since February. And we've mentioned there, I mean, you're passionate about it, the sub markets. There are markets that are going to do double-digit growth this year.
• 8:50
  There are markets that will go back and back in value. That's the reality. And then looking at the prop stack data that we've got on the screen here, you can see it is starting to recover. Yes, there's some stagnation, but we are starting to see a bit of an increase. And this is quarterly, so it looks, that's why it does look lumpy. But when you net it out to the monthly data, you've seen a trend over the last 12 months that across the board, Melbourne has improved.
• 9:10
  Let's move on to the next one, rents. So just to give you some context, medium house price, as we mentioned previously, has declined over the last five years. Medium rent over the last five years is up 60%. So rents are going up.
• 9:28
  prices are going backwards. It's a pretty easy story to get an understanding on. And the question I get asked is, why didn't you take your position earlier into Melbourne? It's very difficult to see when the bottom of the market. So to give you context, I started personally investing in the market March this year and will be the first one to put my hand up that I didn't pick the bottom of the market because that was November the year prior. Because the bottom of the cycle was, when you look at it, was back the year before in 2024.
• 9:59
  Why did we take a position? A, because you don't know, and I'd rather be slightly too late than too early in terms of picking the bottom of the market. But secondly, historically, rental yields in Melbourne have been significantly low and likely too low for most investors. You know, back in 2018, 19, when prices were at its historical peak, rents, as you can see on this graph...
• 10:22
  were comparatively extremely low. So when you look at the median house price, the median house price was well above $900,000, and the median rents was almost $400 a week. So you've got median house prices in 2020 are at $900 to $930, and you've got median rents almost at $400.
• 10:40
  a gross yield of 2.3% on those figures. That's crazy. You can't invest in interest rates at that time. When we go back to 22, 23, 24, when we've seen a bit of an uptakes, so that's at the sixes. And your gross yield's at 2.3. Your net yield's at like 1%. It's not sustainable to hold investment property at that level. But for the first time, as you can see, since we tracked this barter data back here to the 2000s,
• 11:05
  on our index, rents are above the median house price for the first time ever. We're starting to see yields, and we're sitting on the ground with what we're buying, over 4%. So for the first time in my existence, and I spent most of the 2000s in Melbourne, we're seeing yields at 4%. In international city, Melbourne and Sydney haven't seen yields at 4% for the stock that we buy, which is typically heavily land value type assets,
• 11:34
  equivalent more land value than improvement value. We typically haven't seen that. So that's a huge positive and gives far more merit for those that are investing. And we know there is additional fees and land tax that we talk about all the time. We will get to the land tax, don't you worry. But that's offset now by the rental returns, which is making it really attractive for investors. Well, what's fascinating, so Geelong, and we've had questions on previous podcasts whether we see Geelong as a regional. We don't. We see it as a...
• 12:04
  extension to Melbourne, I would say. Geelong actually from villa and a house medium yield perspective is better than Perth in the assets that we're buying. There's probably assets out there that have higher, but they're not in maybe the high risk suburbs that we aren't on our approved list. But from an approved suburb list, we're now looking at Geelong having better yields than Perth. Yeah, exactly. So it does represent again, value for the first time.
• 12:28
  in a number of years where rental data is actually starting to make sense for investors. And that's the problem. When investors are not in a market, you need sort of all levels of the market working in your favour. And that's typically a third, a third, a third. A third of the market, first home buyers. A third of the market, own occupiers. And a third of the market, investors. When those three things are competing in the market, that's when you see consistent growth. For Melbourne, own occupier activity has been good. First home buyer activity has been subdued, but that's now being...
• 12:57
  you know, activated through the first-time buyer scheme, through the first-time buyer scheme. And now we're seeing investors enter the market at quite the rate. Let's go on to the next one, stock on market. Now, for those, we have a large Perth audience, so a lot of Perth audience will hear...
• 13:13
  everyone in the industry, ourselves included, talking about listings, all-time low listings. Now, looking at the Melbourne data, in the last nine months, they've seen their listings go from 19,000 to 14,000, which is one of the sharpest declines they've had in the last 25 years. So listings are decreasing. And we know what decrease in listings has done into the Perth market over the last two years. Yep. And understand that,
• 13:38
  the Melbourne market's more than double the size of the Perth market. Because if you're sitting here, Perth people say, well, there's only...
• 13:44
  2,900 listings in Perth, 14,000 sounds like a lot, but when you've got a population center that's close to six million people, it's very, very different. They only have 14,000 properties on the market. It's the lowest we've seen until 2010, right? So it's significant. And this trend is falling dramatically. And when you look at the approval data and the new construction data, this is gonna get worse before it gets better. So again, what does that mean?
• 14:13
  For market confidence and seeing a value uplift, low supply, high demand, there's a real positive data set when looking at Melbourne for that sort of medium to long-term view.
• 14:22
  Let's go on to population growth. So this is a big one for both Perth. And I guess there's a lot of stats. Viewers will be looking at this, and those listening can't see it. So we've got all capital cities here with the population growth figures. And we're looking at the percentage of population growth. Correct. So you've got Melbourne leading the way. No, so you've got Melbourne. Yep.
• 14:47
  So you've got Perth leading the way, which is... 3.1% growth. And Melbourne coming in with a close second there as well. So the two... At 2.8%. Yeah, at 2.8%. So population growth, you know, it's been well publicised post-COVID. Everyone was leaving. Everyone was leaving. People are coming back and then migration, obviously, for better or for worse, depending on which side of the fence you're sitting on, is driving a lot of that activity in terms of population growth. So more people are coming in, which is going to create...
• 15:15
  a tighter supply. Yep. So you're right. So Perth still has the highest rate of growth. But again, this is a percentage. But due to the sheer population of Melbourne, there's more people moving to Melbourne and migrating to Melbourne than there is anywhere else in the country, which is significant. So you're right, Rhys. COVID, everyone left. COVID, their policy, how they handled it as being...
• 15:39
  very well publicly stated how horrific it was, and that's why Queensland, Western Australia, South Australia, even New South Wales benefited from the exodus of Victoria.
• 15:50
  Those people are coming back. And now because Melbourne's so affordable, Brisbane's not, Adelaide's not. During COVID, pre-COVID when everyone was moving, let's move to Adelaide. You can get a property for half the price of Melbourne. That's why the regionals did it so well. But all these other markets have got to the point now where Melbourne represents significant value. So it's cheaper to buy, still pretty cheaper to rent.
• 16:11
  And then from an international point of view, what are the two international cities? Sydney and Melbourne. And you're looking at it, you can rent a place or buy a place well under a million dollars in Melbourne. In Sydney, good luck getting one bedroom, one bathroom apartment for that. So naturally, more overseas migration is going to Melbourne than it ever has before.
• 16:33
  And it's a state that's become attractive because it's the largest job centre in Australia. So wages are almost the highest in the country. We know Western Australia have very high wages, but certainly the large corporations operate out of Melbourne. So there's a huge job basis there where wages are high, but rents and prices are low. So we're seeing interstate migration.
• 16:53
  So when you look at markets and how they work, supply and demand, population growth is a demand indicator. And the same thing happened in Perth. You look back, why did the market stagnate between 2016 and nine and why did it go backwards? Because it was losing 15 to 25,000 people to interstate migration. People leaving Perth because there's no work here.
• 17:12
  Then fast track, 23, 24, 25. We're now getting 25 to 30,000 people in from interstate and overseas. The same thing's true with Melbourne with COVID. Everyone left, then it becomes extremely attractive because it's cheaper. There's a lot of job activity and now everyone's migrating back.
• 17:29
  You mentioned there the Sydney comparison from a special migration standpoint. On the next PropStack data set, we've actually comparing, because I think you raised some really good points there where they are very comparable markets. And if you're looking at the data sets over the last 25 years, Melbourne has followed a similar trajectory as Sydney, then COVID happened, and then we've seen them sort of go in different directions. Yeah.
• 17:53
  Yeah, absolutely. So you can see here on the data set, it's almost a correlation of one, right? Melbourne and Sydney have been very consistently placed in terms of median house price. Typically, history will tell us there's about $100,000 to $150,000 price difference between Melbourne and Sydney. And Sydney's always been above Melbourne. That's what it's oldest since we've got the data here since 2000. Yeah.
• 18:16
  But now since COVID, that gap has never been so substantial. We see Sydney's median house price now well above 1.4 million and Melbourne under 900,000. So that gap's never been so, so vast. So again, when you compare the markets, the opportunity from someone moving to Australia, because we know migration's the key statistic, right? Natural births, babies don't buy properties, they don't need to rent properties for about 18 years.
• 18:41
  Today, it's like 30 years. People stay at home a lot longer than they ever have. But migration is what drives house values and rents. And so when a market like Melbourne, which is an international city, is so much cheaper than Sydney, it becomes a destination for people to migrate. Finally, I want to talk about the affordability index, which just for those new to the channel, is the medium household income consumed by the medium household mortgage repayment. And this graph here now...
• 19:10
  There's obviously a fair few lines here indicating each capital city. But what you can see there from an affordability standpoint, Perth and Melbourne are the most affordable capital cities in Australia at the moment. And Adelaide is now the second most unaffordable market in the country. For those investing in Adelaide, look at this step before you do. And it's at the historical highs. That's the most important thing. So it's one thing to look at.
• 19:37
  the order of affordability, as we can see here. Super relevant, Perth and Melbourne are still the most affordable. But what's important to see is where a market taps out historically. And as you can see, with the exception of Melbourne and Perth, all the markets are at or exceed their historical affordable index highs. So that's why it's really relevant, Ray. Each market has a different level of
• 20:01
  I guess debt appetite to wage versus your debt. And Sydney's always naturally been higher than any other state. Okay, we're well above historical highs. And that's an argument to suggest why we're seeing the Sydney market start to cool and why we will see or may see in 2026 the South Australian market follow suit.
• 20:19
  I want to just finish up on a couple of key points that we've kind of already addressed. We get asked about this in the comments, so I want to put you on the spot here. Land tax. So since we've had the podcast, this is probably the most common thing that you get called out for is your opinion on land tax.
• 20:36
  it'd be good to open up the discussion and get your thoughts on it. I had to get the figures out, Rhys. Yeah. Because I got accused of getting this extremely wrong. And I was wrong, but not as dramatic as what the comments may have suggested. I was marginally wrong. But let's go through some live examples of the land tax differential between Melbourne and Perth. Because I think there were some passionate Perth listeners that politely said I was incorrect. Yeah.
• 21:05
  So three different price points and the land tax estimate for each market. So purchase price is $650. The land tax in Perth is $550. And this is obviously based on the land value asset, right? So you can't pick like for like because if you buy a block of land,
• 21:23
  where it's entirely land value, obviously the land tax is gonna be higher because it gets portioned to the land value of the property. But broadly speaking, comparable, like for like, 650 purchase, births at 550, Melbourne $2,000. So about $1,500 extra that you have to pay in land tax, which is an annual. So that's the difference between stamp duty, land tax is obviously an annual bill.
• 21:47
  At $850, in Perth, it's close to $1,000. In Melbourne, $2,700, so $1,700 difference. And at $1.5, and this is where it does, like I said, higher price points, you start to see it. And this is what I've always discussed on the show. In Perth, it's $3,500. $3,500.
• 22:05
  In Melbourne, it's 6,500. So obviously- That's what we've been saying, to be fair. They're there to tax the wealthy, and it works. But at the lower price points, we're talking about like a 0.2% difference annually. And so the argument to that is, if you see Melbourne as a good medium to turn long-term bet,
• 22:26
  And if it gets back to its long-term compounding growth rate of, you know, in a rising market, it's typically double-digit growth, but over the long-term, 7.5%, then 0.2%
• 22:39
  is a pretty good bet, in my opinion, when you're looking at long-term growth. And we're seeing Melbourne exceed 0.2% every month at the moment. So I'm confident in that. Yes, you do have the holdy costs are slightly higher, but what offsets that is we're seeing rental yields higher than that in other capital cities now. And that was the problem. The land tax was the issue in isolation with net yields, sorry, with gross yields historically at 2.5%.
• 23:07
  then I've probably got concerns because you're getting a low, you're getting a massive, because then you've got a real high cash burn and it puts a lot of pressure on the investment asset. A lot of pressure. Because what happens when you've got an asset that's costing you 60, 70, 80 grand a year to hold and you're not seeing significant capital growth, people sell it. And once they take out transaction costs, it hits your bottom line. But when you've got yields at four, four and a half, sometimes 5%, and you're paying an extra 0.2% in annual cost due to your land tax,
• 23:36
  I'm comfortable. So Lachlan, you've mentioned Melbourne won't be the biggest performer over the next 12 to 18 months. Is Melbourne the best medium to long-term play in Australia right now? Without a doubt.
• 23:52
  Without a doubt. You are buying in a market. People talk about affordability and more and more topical, how unaffordable the market is and generations from now our kids won't be able to get into the property real estate market. This is a moment in time where I believe that investors can buy into the largest city in Australia when it's affordable. And this will be the last time I believe that it will be a...
• 24:20
  asset that's palatable for investment because typically people only invest right we talk about this we've done a there's a phd in the sweet spot of what to invest in certain levels of um your income say the sweet spot for investments between that sort of you know 600 to 800 000 you know for those looking for more negative gearing benefits might be higher than that for those on lower incomes it might be lower than that this may be the only time that you get that
• 24:48
  generational that you can invest in the Melbourne market. Thanks for listening to the Folio Property Podcast. This is our last episode for 2025. We're releasing some mini episodes over the coming weeks. So please keep an eye for a year out for that. Have a great Christmas. Just sit back and
• 25:06
  Have a great Christmas. Don't listen to our podcast and just relax. Enjoy a beer and try not to listen or watch too much media around property. There'll be lots of headlines just trying to grab your attention. So I encourage everyone just to switch off and we'll come back to you in 2026 with bigger and better things. Well said. You've been listening to the Folio Property Podcast.