Melbourne real estate: 50 best suburbs to invest in 2021

Ugly duckling suburbs and sea-change spots dominate a list of the postcodes investors should be targeting. SEE OUR TOP 50.

Luke and Jess Camilleri recently bought an investment property in Malvern East, which realestate.com.au data has named among Melbourne's top 50 suburbs for investors. Picture: Wayne Taylor

Budding property investors shouldn’t rule out ugly duckling suburbs when kicking off their portfolios, with new research naming St Albans, Frankston North and Werribee among top buying targets.

The up-and-coming trio is among 50 Melbourne postcodes identified by realestate.com.au as strong performers in three key investor metrics: long-term capital growth, rental yields and demand from tenants.

The data, supplied exclusively to the Herald Sun, also suggests the best buying opportunities lie further out, with just six suburbs on the list falling within 20km of the CBD.

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40 Hanover St, Brunswick, is on the market with a $1.15m-$1.25m price guide.

They were the Brunswick and Lalor house markets and the Malvern East, Clayton, Box Hill and St Albans unit markets.

The pandemic-driven normalisation of working from home, and push towards sea and tree-change areas like Mornington Peninsula, Macedon Ranges and Yarra Ranges has contributed to this, experts say.

REA economist Paul Ryan said “the Covid effect” that had led to house markets further from the CBD – many of them on the coast – dominating the list was largely the result of a significant shift in where renters wanted to live.

“Expats coming back to Melbourne, or people who are living in small apartments in the city and working from home are thinking, ‘if we’re not working from the office, can we choose somewhere with more lifestyle amenity’,” he said.

“That’s pushing a lot of those Mornington Peninsula suburbs and quite pleasant outer-suburban regions on to the list.”

14 Summerfield Drive, Mornington, is on the market for $1.45m-$1.55m

Advantage Property Consulting director Frank Valentic said the swing away from the inner city was also “reflective of the fact Melburnians are now getting priced out of the inner suburbs”.

Mr Valentic said investors couldn’t go wrong on the Mornington Peninsula, tipping prices to “keep going up”, with potentially lucrative Airbnb returns another benefit.

The region made up a fifth of realestate.com.au’s top 50 list, with both Mornington’s house and unit markets making the cut.

A typical house in the suburb has notably jumped 93 per cent in price over the past decade, experienced a 4.3 per cent growth in interest from tenants, and is offering a solid 3.3 per cent rental yield.

Other top Peninsula performers were Mt Eliza houses (121 per cent 10-year capital growth), Somerville houses and Mornington units (both 3.8 per cent rental yields), and Safety Beach houses (22 per cent annual rental demand increase).

This unit at 1/164 Biggs St, St Albans, is asking $500,000-$550,000.

Suburbs that had previously not had the best reputations also stood out to Mr Valentic, who urged buyers not to discount them.

“In St Albans, you’re now paying $600,000-$650,000 for a house – 10 years ago, someone would have said ‘you’ve got rocks in your heads’ if you suggested that would be the case,” the buyer’s advocate said.

“You’ve still got some negative elements there, but it’s an area that’s definitely more up and coming. (Investors should) focus on having a long-term view.”

In this category, he also highlighted Frankston, Werribee and Seaford, where both houses and units were deemed top investor targets, plus Frankston North and Lalor.

The sellers of 7 Melvin Street, Frankston, are seeking a $900,000-$990,000 sale.

Stockdale & Leggo chief executive Charlotte Pascoe said ultimately, it should be “a calculator that decides where you buy, not your heart”.

“Too many investors buy in their backyard,” she said. “But Victoria is a bloody big place.”

She recommended researching areas with major upcoming infrastructure projects, as they had the potential to drive future price growth.

“I bought three properties in Croydon right before EastLink went in – something like that can increase your property’s price overnight,” she said.

“Also, get something that’s low maintenance, as it means low cost, and ideally buy land. Even if it’s a unit – that soil is what goes up in value.”

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‘Bread and butter investing’ for the win

Luke and Jess Camilleri’s new investment is in a “prime position”. Picture: Wayne Taylor

For 15 years, Luke Camilleri’s focus has been “good bread-and-butter investing”.

He’s bought and sold about six Melbourne properties in that time, with two making up his portfolio these days: an inner-north house and a ’70s Malvern East apartment he recently snapped up.

New realestate.com.au research suggests the latter was a particularly good buy, with the southeastern suburb’s unit market named about Melbourne’s top 50 spots for investors thanks to 59 per cent 10-year price gains and 3.8 per cent median rental yield.

Mr Camilleri said he and wife Jess chose the Malvern East pad because it was in “an affluent area with good schools, three train stations nearby and cafes down the end of the street”, and minimal other apartments around.

“It’s a prime position that’s great for a student, a young couple or a downsizer,” he said.

“You want to be able to attract a good proportion of the (tenant) market because you’re going to be able to get better rental returns and when you sell, have more interest.

“It’s good bread-and-butter investing.”

Mr Camilleri, a mortgage broker at Mortgage Choice, added Melbourne property had long been a “steady investment”. He anticipated continued price growth would make it tougher for new investors to crack in, urging anyone interested in taking the plunge to do so sooner than later, but without overstretching.

“A lot of people are wanting to buy because the market is strong, the problem is there’s not a lot of stock and people are overpaying,” he said.

“We’re doing a lot of investor lending at the moment, but investors are probably working a bit harder to buy something.”

The data explained

The list was created by realestate.com.au to feature suburbs in the top half of distribution for three metrics:

1. 10-year median price growth: percentage change in median price in year to June 2021, compared with year to June 2011

2. Rental yield: how much profit you generate from your investment as a percentage, calculated by determining the annual median rent as a proportion of the median price

3. Annual change in rental demand: based on searches on realestate.com.au by “high-intent renters” who have looked at multiple properties, made inquiries with agents, booked inspections, etc.

Investor cashflow: the monthly rent a property earns minus monthly mortgage payments (assuming a 30-year mortgage, 80 per cent loan, 2.73 per cent interest rate)