The future is mostly bright for Melbourne's property market – NEWS.com.au

MELBOURNE is expected to lead the nation for house price growth over the next two years — but the forecast for the unit market isn’t as rosy.

These are among the predictions of NAB’s latest Residential Property Survey, which also found foreigners had retreated from Victoria in the September quarter, while first-home buyers became more prominent.

The survey of about 300 property professionals also found market confidence was strongest in Victoria of all the states, bouncing back from a lull in the June quarter.

It picked Frankston, Werribee, Cheltenham, Toorak, the Melbourne CBD and Ballarat to enjoy “above average growth” in the next year.

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Melbourne house prices overall are tipped to rise 8.6 per cent this year, 5.5 per cent next year and 3.4 per cent in 2019.

These figures mark a slowdown from 2015’s 15.8 per cent and 2016’s 9.5 per cent gains, but they’re expected to be among the highest experienced by Australia’s capitals.

Only Hobart is forecast to achieve bigger price growth this year, at 10 per cent, before Melbourne emerges as the strongest market nationally in 2018 and 2019.

On the unit front, 6.4 per cent price gains are expected in Victoria’s capital this year and 1.2 per cent next year, sustained by the city’s population growth.

But prices are then tipped to fall 2.4 per cent the year after.

“The underperformance seen in the apartment market is set to continue, reflecting heightened supply concerns … and uncertainty around the future of foreign demand,” the report said.

“The timing of when new supply will come online and the willingness of potential buyers to shift their preferences towards smaller dwellings — influenced by affordability, cultural shifts, infrastructure and so on — remains a source of uncertainty.”

NAB Group chief economist Alan Oster said the nation’s moderating property market reflected a combination of “deteriorating affordability, rising supply of apartments, tighter credit conditions and rising interest rates in the second half of 2018”.

The report also found rental returns are expected to outpace capital growth in Victoria, suggesting yields will also rise to provide “the best income returns of all states” for investors.

The share of new property sales involving foreign buyers fell in Victoria, from 20.8 per cent in the June quarter to 14.4 per cent in the three months to September.

The state still had the largest proportion of offshore purchasers in this section of the market, with the report concluding “tighter restrictions on foreign buyers of Australian properties appear to be biting”.

Foreigners were also less involved in Victoria’s established housing market, while first-home buyer activity rose in both the new and established sectors.

samantha.landy@news.com.au