Figures from the Australian Bureau of Statistics, released in February, reported that Melbourne's population had increased by 49,000 in 2005/2006, or just under 1,000 per week, the most of any Australian state capital city.

The shire of Melton in Melbourne ranked third in a list of fastest growing local government areas, after Perth and Capel in Western Australia, with a growth rate of 8.9 per cent.

Scott Keck, managing director of Charter Keck Cramer Property Values wrote in the Australian Financial Review that: "We see the markets generally as being fantastic over the next ten years, due entirely to population growth." He continued: "We're on the doorstep now of the strongest decade that we can image."

Commenting on the demand for Melbourne property, in The Sunday Herald Sun newspaper, Adrian Jones, President of the Real Estate Institute of Victoria noted that: "I've had guys in my office saying they've got 40 good buyers, but there are only 20 houses for sale in the whole suburb. That's a recipe for explosive prices. As long as we keep 1,000 people a week moving into this city, that will continue."

Increased demand for real estate has had an, often guaranteed, knock-on effect and increased the value of Melbourne property.

Australian Property Monitors (APM) recently announced that this year's June quarter property market results were the best since the September quarter in 2001, with house prices growing by 6.5 per cent and unit prices by 4.1 per cent. APM also reported that Melbourne's prestige property markets had experienced over double digit growth.

Other studies supporting APM's optimistic outlook for Melbourne and the rest of Victoria include those conducted by the Victorian Valuer General, showing that the state's property prices have increased by an average of 15 per cent a year over the last decade.

The Real Estate Institute of Victoria's figures from the June quarter also showed an increase of 10.2 per cent in Melbourne's median house price to AUS$420,000.

The five suburbs in Melbourne that showed the strongest growth in property prices in 2006 were Tyabb, with the median price of AUS$450,000, a 99 per cent increase, St Kilda West at AUS$1,100,000, (49 per cent), Doreen at AUS$370,000 (48 per cent), Cape Schanck at AUS$521,000 (44 per cent) and West Melbourne at AUS$546,000 (36 per cent).

The top five suburbs for growth in unit prices in 2006 were Canterbury, with a median price of AUS$720,000, a 100 per cent change, Middle Park at AUS$358,750, a 41 per cent change, Melton Park at AUS$220,000, a 36 per cent change, Chelseas Heights at AUS$325,000, a 30 per cent change and Huntingdale at AUS$299,000, a 29 per cent change.

Although Melbourne's property prices are rapidly climbing, their relative affordability is also contributing to the attraction of Victoria's capital city.

"Melbourne apartment prices have historically been approximately 20 to 25 per cent more affordable than Sydney," Australian Property Investor Planning (APIP) noted in their recent Melbourne Investment Property report. "However the current price difference inner city apartments is over 45 per cent meaning there is plenty of upside potential in Melbourne."

Increased immigrant demand for property in Melbourne is in turn creating growing demand among property investors and first time buyers looking to capitalize on the booming market.

"Low stock levels mean that more cashed-up buyers are competing for a smaller pool of available properties on the market," said Australian Property Monitors (APM) general manager Michael McNamara. "First home buyers are also competing with investors trying to take advantage of increasing gross rental yields."

But where are the best areas to invest your money in Melbourne's fruitful property market?

APIP note that "Melbourne developers are turning their sights toward the city's middle and outer ring suburbs."

Warning against investing in small inner-city units, they continue: "Melbourne's
high-rise inner-city units lack scarcity value at the moment because they are 'a dime a dozen'. This factor is also a major influence on the level of rental returns achievable.
"Hundreds of virtually the same style of units are now on the market. Most of these buildings are at a risk of rapid architectural obsolescence, which is likely to further undermine capital appreciation."

For those interested in capitalizing in the rental market the outlook is also positive.

"Rental returns are increasing for the first time in eight years and their increasing attractiveness should result in a weight of funds returning to this sector after a break of some four years," said Robert Campbell in financial adviser's Armadale House's recent report on the Melbourne property market.

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For more information visit:
Property Investor Planning
Armadale House
Real Estate Insitute of Victoria
Australian Property Monitors
Australian Bureau of Statistics

Article first published 22 August 2007