‘A Punch in the Guts’: Why Melbourne Apartment Market Needs to Reset

Melbourne’s apartment market is inching forward, but the recovery remains fragile, Charter Keck Cramer executive director Richard Temlett warns. The sector is still caught in a tangle of policy uncertainty, soft sentiment and a tax regime that risks turning investors away at the exact moment the city needs them most. “It’s picking up a lot better than it was 12 months ago. It’s still slow,” Temlett says. But he says recent macroeconomic signals and a wave of pessimistic headlines have knocked the wind out of the sails of the buyer market. “Some announcements—no rate cuts and things like that—have sucked the life out of certain parts of the market. “Buyers read the headlines and go, ‘It’s just too hard’. It’s so sensitive right now where they’re just going, ‘Let’s hold off, we don’t know what’s going to happen’.” This fragile backdrop has placed Melbourne in a precarious position: a city with strong fundamentals but a sales environment that Temlett describes as distorted, and at risk of further policy shocks. According to Charter Keck Cramer data, there are 8000 residual stock apartments built between 2020 and 2024 that are still on the shelf, and the city needs to digest this stock and kickstart its recalibration on pricing. Sounds easy, but the reality is anything but. Foreign investment needs ‘shot in the arm’ Despite popular misconceptions, Melbourne’s apartment pipeline still depends heavily on offshore demand. Temlett says the reality is fairly stark for apartment developers in Melbourne. “Up to 70 per cent of projects would actually come from overseas capital. That’s just the reality of the new off-the-plan apartment market,” he says. ▲ Charter Keck Cramer national executive director of research Richard Temlett. Foreign investors may not be buying prestige downsizer stock, but they remain the backbone that funds, builds, and delivers projects. Without them, presales dry up. “They need those presales to go to a financier and say: there are buyers, there’s market acceptance at these price points. Once borders closed, the government distorted the market. They need to intervene again.” The problem, he argues, is that Victoria has done the opposite. Taxes, surcharges, fees, and additional hurdles have created, he says, “a death by a thousand cuts”. “If they didn’t want to remove all of them, they could at least level it to Sydney or Brisbane—make it a fair playing field,” Temlett says. “My view is that because we’re so much more reliant on investors, we should actually remove some of those taxes or remove them completely.” ‘Devastating’ outcome if lending tightens What Temlett fears most is a regulatory shock similar to 2017, when investor lending curbs choked the market. “Proportions are as high as back in 2017 when they started putting restrictions on lending to investors,” he says. “If APRA comes in and basically limits the number of investors, that again is just another huge, huge punch in the guts for the Melbourne market.” With around 70 per cent of Melbourne’s apartment projects still underpinned by investors, Temlett says any tightening would hit the city far harder than Brisbane or Sydney. “If we have APRA restricting investor lending, it will be devastating.” Presales are slipping—but so are the hurdles. ▲ Melbourne ’ s Metro is due to open in days and has absorbed much of the construction capacity in Victoria. The slowdown is evident across all buyer cohorts. But traditional banks have begun adjusting their expectations to keep projects alive. “The Big Four banks have dropped presales requirements because they know how hard it is,” Temlett says. “It used to be 65 to 70 per cent. Now it could be 50 per cent. Private credit is doing even lower. I’ve seen deals with zero presales—that’s the exception, but that’s where the market is at.” Developers are adapting by selling smaller products—studios, one-bedders, two-bed, one-baths—through interstate channels and overseas, often with high commissions. “They’re having to create the market from a price-point perspective,” he says. The strategy is to move enough lower-priced stock to secure construction funding, then push pricing on the larger, premium homes once a project is live. “It’s risky. It can’t work for every project. But some are getting strong sales—it comes down to developer brand, builder reputation, the quality of the product.” Brand Melbourne: stronger abroad than home Despite local pessimism, Melbourne’s global reputation remains powerful. “Brand Melbourne is extremely well known—fastest growing city, huge tertiary education sector, clean air, transparent political system, good infrastructure,” Temlett says. He recently visited Singapore, where offshore capital still sees Melbourne as one of the world’s safest and best-value residential markets. “They’re very attracted to it—probably even more so than Sydney, given the price points. People overseas see Melbourne very differently from Melburnians.” The internal negativity, he says, is a hangover from the lockdown period. But from the outside, Melbourne is viewed as undervalued with significant upside. Temlett is unequivocal: Melbourne is undervalued. ▲ Melbourne is on the cusp of a new cycle, according to Temlett. “I’m absolutely convinced Melbourne has the greatest upside. It’s at the start of a very strong cycle.” But that hinges on policy stability. “How fast it corrects comes down to what APRA, the RBA or the state government does or doesn’t do.” If lending is tightened or taxes are increased, the recovery of Melbourne’s apartment market could stall. But if governments hold steady—and ideally, provide relief to investors—the market has the underlying strength to lift sharply, Temlett believes. “It just needs that initial bump, and once it gets momentum, the private sector will come in because the fundamentals are here. The demand is certainly here.” What developers and financiers are craving, he says, is certainty. “What they need is a consistent position on housing, immigration, and taxes. It’s stop-start every month, and finance hates uncertainty. It couldn’t be more uncertain—it’s as bad as Covid. From week to week, you don’t know what’s going to happen.” In a market where sentiment is already on edge, Temlett argues clarity is not just helpful—it’s essential. “The market will take care of itself if the government gives the sector some breathing room.”

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