Melbourne suburbs where priced-out home buyers found the next best thing

Unit values are climbing in a string of Melbourne suburbs, bucking the trend of an overall sluggish market.

Many of the suburbs that recorded rising unit values in the three months to November included medium-density blocks, CoreLogic research director Tim Lawless said.

“Most would have a predominance of medium-density styles of apartment projects rather than high-rise developments closer to the city centre,” Lawless said.

“It may be buyers are preferring lower-density styles of units, which is helping to support prices.”

Many of these top-performing markets are in eastern and north-eastern middle-ring suburbs more than 10 kilometres from the CBD, but also in commuter areas served by the rail network.

Blackburn South, Burwood East, Box Hill and Watsonia recorded quarterly unit rises of between 4.8 per cent and 5.2 per cent.

Closer in, unit prices rose in Kensington, Carlton and Parkville, which also had some medium-density environments rather than high-rise, Lawless said.

CoreLogic has seen the trend across most of the capital cities in which unit values are rising at a faster pace than house values.

The researchers attribute the jumps to affordability. Units are often the only viable option for buyers locked out of standalone houses, especially with cost-of-living pressures on top of high interest rates and generally strict serviceability arrangements.

“It’s logical more demand would be deflected towards the unit sector,” Lawless said.

Unit values in a handful of suburbs such as Parkville have been rising.Credit: Simon Schluter

Melbourne house values have dropped by 6.1 per cent since their peak in early 2022, and Lawless said: “There’s a good chance more buyers are looking towards lower-density styles of units such as townhouses, villas or low-rise apartments as a ‘next best’ option.”

Kensington’s stock of older blocks built from the 1960s to the 1980s is one factor in the 4.2 per cent rise in unit prices in the inner north-west suburb.

“People love them,” said Ryan Currie, of Nelson Alexander in Flemington. “They’re not as interested in the newer product.”

They were typically small brick blocks, often just 10 units, with balconies or courtyards and a build quality that had “stood the test of time”, Currie said.

In late November, he auctioned a two-bedroom unit at 6/29 Eastwood Street in Kensington for $524,000, compared with its $490,000 reserve.

“It had everything first home buyers and downsizers look for: good-sized rooms, 13 units in an older block, no high body corp fees or major future works,” Currie said. “We ended up having two buyers in an old-fashioned shootout.”

While a renovated single-front home in Kensington will set you back upwards of $1.1 million, Currie said: “You would be able to get an older style unit for under $600,000 – potentially under $550,000.”

Unit values are climbing for similar reasons in Blackburn South, Burwood East and Box Hill.

Andrew Luke, of Jellis Craig Whitehorse, said: “Buyers are definitely looking for more affordable options if they’re priced out of a standalone house.”

Here, it’s common for a house to cost about $1.35 million. But for units, “you woud be looking from about $550,000 to $800,000, with the majority in that $550,000 to $650,000 range”, Luke said.

Many buyers in these areas are first home buyers, but investors are making a comeback too. Luke said this was “because of amenities you have a little bit further out, with transport options and strong communities. It’s also not as congested as closer to the city.”

Unlike those in Kensington, most units in the top-performing eastern suburbs are less than 20 years old. One of the best investments is villa units, according to Luke.

“That product isn’t being built any more, so finding single-level villas is going to become rarer and rarer,” he said. “Single-level villas are usually only a development of three, so they’re more popular and more in your $650,000 to $850,000 range.”

Units aren’t without risks, however. Supply can fluctuate, affecting prices. “Periods of high supply can dampen upwards pressure on prices,” said Core Logic’s Lawless.

Buying off the plan can also have pitfalls. “There’s always the risk of a long settlement period where situations can change, either for the buyer, in the market or across the economy,” Lawless said. “There’s no guarantee the settlement valuations will be the same as the contracted price.”

Jellis Craig’s Luke points out two other risks: “Have a look at the owners’ corporation fees and expenses. And it’s the same old thing – how many neighbours do you want?”