Resurgence of investment-grade apartment prices in Melbourne–Stuart Wemyss

Summary

Stuart Wemyss argues that investment-grade apartments in Melbourne may be approaching a strong capital-growth cycle after a long period of weak performance. He acknowledges that a similar prediction he made in October 2020 was early: Melbourne apartments remained broadly flat for almost five years afterward.

His current case rests on a combination of pent-up demand, limited new supply, higher replacement costs, affordability relative to houses, and policy changes that may increase first-home-buyer demand. He emphasizes that the timing remains uncertain.

Investment-grade apartments vs. “investment stock”

The speakers caution that not all apartments are suitable investments. They distinguish between:

• High-rise, high-density apartments: These often contain many near-identical units, with little scarcity and a small share of the underlying land. Wemyss estimates that land may represent less than 10% of the value of a new high-rise apartment. Building depreciation can offset some appreciation.
• Investment-grade apartments: These are typically older, established apartments in quiet, blue-chip suburban locations, on blocks of roughly 400–800 square metres with around four to eight apartments. Wemyss says the land component can make up more than 50% of the value. The speakers also favour their established construction, practical layouts, and usable balconies or courtyards.

They suggest comparing an apartment’s estimated land value and building replacement cost with its purchase price as one way to assess whether it is priced below intrinsic value. Council land valuations can provide an indication, but are not precise.

Market drivers and figures cited

• Melbourne apartment prices: Wemyss says the market has been broadly flat since the global financial crisis and that median apartment prices have barely kept pace with inflation over roughly 15 years.
• Replacement costs: He says high-density apartments now cost developers roughly 30–40% more to build than 10–15 years ago, due to construction costs, labour shortages, materials, and other expenses. A new one-bedroom apartment that might once have cost about $450,000 was estimated to cost around $800,000 to build or sell today, while established apartments have risen much less.
• Supply: Apartment and attached-dwelling construction commencements are estimated at about $2.2 billion per quarter, compared with about $3 billion in 2009, measured in today’s dollars—over 30% lower. Melbourne’s population is said to have grown about 12% over that period. The speakers interpret this as evidence of a supply shortfall, while noting that construction-value data is not the same as dwelling counts.
• First-home-buyer policy: They discuss an expanded government guarantee allowing eligible buyers to purchase with a 5% deposit, with the guarantee intended to help them avoid lenders mortgage insurance. The stated price caps are $1 million in Victoria and $1.5 million in New South Wales. The scheme was described as previously capped at 35,000 participants and becoming unlimited. Wemyss estimates that 80,000–120,000 first-home buyers enter the market in a typical year. They expect the change to affect the sub-$1 million market particularly, but this is a forecast.
• Borrowing capacity: Wemyss says lender flexibility around HELP/HECS debt repayments could improve some buyers’ borrowing capacity. He frames borrowing capacity as depending on both security or deposit and repayment serviceability.
• Relative prices: Melbourne’s median house price is said to be about 1.5 times the median apartment price, down from around 1.6 a few years earlier. The cited longer-term average ratio is 1.3. Wemyss considers apartments better value relative to houses, while Yardney says Melbourne houses may also look good value.
• Other cities: Brisbane apartments are described as having risen around 50–60% over the past couple of years. Brisbane’s median apartment market was said to have been flat from mid-2008 to March 2021, followed by a roughly 60% rise. Sydney apartments are described as having performed more consistently.
• Market cycles: Wemyss cites an average property growth cycle of about 10 years and a flat cycle of 7–8 years. He says Melbourne’s flat period is unusually long at roughly 15 years, while Brisbane’s previous flat period lasted about 13 years.
• Population outlook: Melbourne is forecast in the discussion to reach 9 million people by 2050, around 4.5 million more than at present.
• Buyer demand: Yardney also points to recent high Melbourne auction clearance rates and a small number of properties for sale as signs of improving buyer demand.

Framework and recommendations presented

The speakers recommend that investors:

• Focus on investment-grade apartments, not generic high-rise “investment stock.”
• Assess the apartment’s underlying land share, location, scarcity, building quality, layout, and condition.
• Compare the purchase price with land value plus estimated building replacement cost, treating council land valuations as indicative rather than definitive.
• Consider replacement costs and the gap between established apartments and new builds as potential support for established-property prices.

For buyers with a budget below $1 million, Wemyss says he would favour an investment-grade Melbourne apartment. He recommends acting before 1 January 2026, arguing that expanded first-home-buyer access could bring more buyers into the market. He also anticipates one or more interest-rate cuts over the following 12 months, which could increase borrowing capacity. These are forecasts, not certainties.

Yardney urges investors not to wait for headlines about a boom, but to get ahead of the market. His comments are accompanied by a promotion for a Metropole wealth consultation.

Risks and cautions

• Wemyss explicitly acknowledges that his 2020 forecast was wrong on timing and says the current prediction could also take longer to materialize.
• Apartment prices are described as particularly sensitive to interest rates and borrowing capacity.
• High-rise apartments may face oversupply, limited land value, construction-quality problems, and weaker scarcity. The speakers warn against assuming all Melbourne apartments will benefit equally.
• Government policy, future supply, interest rates, and market-cycle timing are uncertain. The discussion presents a bullish investment thesis, not a guarantee of price growth.

Assets and instruments mentioned

• Australian residential property, especially Melbourne apartments and houses.
• Comparisons with Brisbane and Sydney apartments.
• No stock tickers, listed funds, bonds, commodities, or cryptocurrencies are discussed.

Disclosures

The podcast states that its information is general educational information, not specific investment advice, because the speakers do not know listeners’ personal circumstances. Metropole’s wealth consultation is promoted as a service. Yardney also makes a direct promotional recommendation to act before the market rises.

Presenters and sources

• Michael Yardney, host of the Michael Yardney Podcast and principal voice of Metropole.
• Stuart Wemyss, director of Pro Solution Private Clients, introduced as an accountant, mortgage broker, and financial adviser.
• Yardney refers to Wemyss’s October 2020 report, his articles and charts, and property-market data discussed during the interview. The transcript also mentions Yardney’s podcast, Demographics Decoded, co-hosted with Simon Kuestenmacher.