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There is so many investors talking about Melbourne in 2025. Melbourne certainly has its pros and cons, but if you are looking at investing here now, there are some areas you really want to avoid. This episode, I'm unpacking five of the worst Melbourne suburbs, the areas that have the worst metrics and should be avoided at all costs for property investors. I'm Joma, the lead research analyst at InvestorKit, and let's get into it. Before we get into the suburbs, I want to introduce to you how I selected them.
Basically, I was looking for five issues. The first one is high proportion of units, because you know, units as an asset has a really bad long-term growth record. And two is high inventory. Three is high incoming supply, meaning that we might be facing oversupply issue in the near future. The fourth is low rental yield, considering we're still in a very high interest environment.
And low yield would probably cause you a lot of financial pressure. And then the last issue would be high vacancy rate, which could cause long vacancy periods and slow rental growth, and they will both affect your cash flow. And now with those five issues in mind, let's jump into the suburbs. Each of the suburbs are suffering two or even more issues among those five. The first suburb we're looking at is Melbourne 3000, basically the CBD area.
You must be able to tell that the first issue we're looking at is the high unit proportion. In fact, 99% of the residential properties in Melbourne 3000 are units or apartments, and that has definitely caused an oversupply issue. In the past 10 years, from 2014 to 2024, unit prices in Melbourne CBD only increased by 4%. That is merely nothing. And the high volume of unit supply has also caused high vacancy rates in Melbourne CBD.
Now we are looking at 3. 3% vacancy rate in this suburb, and this high vacancy rate has caused 0% rental growth over the past year. And in comparison, Melbourne's house rental prices have increased by 10. 5% over the same period. The next suburb is Melbourne North 3008.
Very similar to Melbourne CBD, but slightly different. The unit proportion here is 68%, with the rest of the residential properties being terraces. One problem it is facing that Melbourne CBD is not is the high incoming supply. New dwelling building approvals here takes up 10% of its current dwelling stock. So it is facing an oversupply issue, and this oversupply issue is likely to continue in the coming few years.
In the long term, the price growth wasn't really good either. The last 10-year growth in total was actually a negative 4%. So unit prices here are actually lower than it was in 2014. Similar to Melbourne CBD, the vacancy rate here is 1. 7%.
Not extremely high, but higher than Greater Melbourne's average. And in the past year, rental growth was only 4%. There's still growth, but much lower than the 10. 5% house rental growth. And then the third suburb we're looking at is Fraser Rice in the West, postcode 3336.
Just in case you haven't heard of it before, it is close to Taylor's Hill in the West, and it's a fairly new area. Because it's a new area, you must have guessed, the biggest problem here is the high level of new supply. Over the past 15 months, the new house building approvals take up 28% of its current dwelling stock. And that high amount of new incoming supply has caused an extremely high inventory level of more than 15 months of stock. To give you some context, usually 3 to 4 months of stock is deemed as the balance level, and Greater Melbourne now is seeing around 3 months of stock.
So 15 months of stock is crazily high. And because of that high inventory or high supply level relative to its demand level, in the past year, the house prices here actually declined by 0. 7%. It's even worse than Greater Melbourne itself, which didn't see any growth. And the fourth suburb we are looking at is Gisborne 3437 in the North.
It was a really hot market during the COVID boom from 2020 to 2022, and it achieved 50% total growth in those three years. But now, it's a different story there. The inventory level there is now over 16 months of stock, even higher than the new suburb of Fraser Rice. And as a result of that high inventory level, price has declined by 9% over the past year, and it is now still trending down. So we won't see much growth happening in Gisborne in the short term until the inventory level there comes down to a much healthier level.
Then the next suburb is on the Mornington Peninsula, Sorrento 3943. Again, just like Gisborne, it was a hotspot during the COVID boom, having achieved 63% growth in those three years. But now, like Gisborne, the inventory level there is high, more than 8 months of stock now, and house prices have decreased by 18% in the past year. Lost 18%. I just want that to sink in for a second.
Imagine buying a house for a million dollars in Sorrento last year, and now you have lost almost $200,000. I feel for anyone that's been in that situation. If you're really not sure where to buy, reach out and have a chat with us, because I don't want to see anyone ever in that situation. So 18% decline in the past year, it wasn't just because of the cycle position. The poor affordability in that area also contributed a lot, considering the high interest rates environment.
And then the next problem this area is suffering is the low rental yield. It is now just seeing a 2. 1% rental yield in its house market. That is one of the lowest rental yield level across all Melbourne suburbs. In 2025, we will probably have high interest rates, even with a few rate cuts.
So it would be good to have a at least balanced level of rental yield to have less pressure on your cash flow. So those are the five of the worst suburbs to invest in now in Melbourne. They are not necessarily the worst all the time. As I have mentioned, some of them were actually really hotspots three years ago. And as time goes by, one day they will probably become hotspots again.
But as of now, data is showing that these five suburbs are the five worst locations for property investors now. Tell me in the comments what the location is that you want us to give you the top five best or the top five worst list on. And we might be making your episode soon. I'm Junge Ma, the lead research analyst at InvestorKit, and I'll see you soon.
