This is how inner-city, scarce and beautiful properties can perform

When markets correct, it is often the highest priced quartiles that can experience the toughest losses. Depending on the drivers for the market correction, when economic pain or uncertainty arises, affordability constraints can favour the cheaper markets.

However, when markets recover, particularly when credit availability isn’t hampered, higher priced markets can really soar.

Melbourne’s property market uptick seems to be more than a ‘dead cat bounce’ now. Our city has recorded strong clearance rates since the 2025 auction season opened. On the ground, I have not experienced an auction with any less than three bidders this year; a stark contrast to 2024.

Yesterday’s second auction for us was particularly interesting.

We were representing an owner-occupier client who had spotted an ideal property for her needs in the prestigious inner ring suburb of Albert Park. Located just 4 kilometres from Melbourne’s CBD, this suburb’s land values sits within the top three for the state. This superb single-fronted Victorian cottage boasts a picture-perfect facade in a pretty neighbourhood, but it’s the surprise offering behind the facade that drew such emotional bidders.

The house has been beautifully renovated, with a full third room conversion now offering a superb ensuite.

The rear garage conversion is the surprise though. The space has been thoughtfully renovated and extended to offer a rear laneway accessible office/living space with an upstairs master bedroom and bathroom.

From a separate office option to a self-contained guest suite, the opportunity that this presents for a variety of buyers is boundless.

With the sound of the formula one motos roaring around the lake in the near distance, a crowd gathered where they could find shade in a leafy street. 27 Hambleton Street was scheduled to go to auction in the coming weeks, but an offer some $200,000 above the top of the quoted range stirred the vendors into gear and the auction was brought forward at short notice.

The opening bid was that of the auctioneer’s, placing the property firmly on the market at $2,450,000. This bid mirrored the signed offer that was received the previous afternoon.

From there, the bids flew at the pace of the cars on the race track nearby. Within ten minutes, an advocate and a late auction entrant were battling it out above $3,000,000. The hammer fell on the advocate’s bold bid of $3,050,000. His client, who was in the crowd looked relieved.

The question is; why would buyers stretch to these heights for a property that had a reserve some $600,000 less than the sale price?

Firstly, properties like this are in limited supply. Albert Park and Middle Park are home to 6,044 and 4,000 respectively (as at the last Census). With limited apartment blocks and streets hosting beautiful period Victorian cottages, these two suburbs are well-known for their ownership tenure being longer than most. In fact, Middle Park and Albert Park are two of the city’s most tightly held suburbs. Turnover is low and supply is limited.

In addition to this challenge, putting a precise value on these homes is difficult. We can compare one Victorian cottage to another, but when we consider the differences between homes, our analysis is not always conclusive. Victorian cottages are now around 130-150 years old. Over this time, owners update, upgrade, extend, modify and re-update.

Despite some streetscapes appearing homogenous, there is nothing homogenous about these properties once we step inside. They are all unique.

The best sales analysis I could muster suggested that this property could sell for $2,700,000, yet my buyer was prepared to push past this level due to the scarcity and limited supply issue.

My buyer wasn’t on her own. The other buyers felt the same.

Inner-ring properties are already scarce just based on distance to the city. When we consider the radii from the city and compare various bands of suburbs around our CBD, an interesting way to understand the increasing scarcity as we get closer to our city centre is to rely on this formula;

Assuming our city was land-locked (which it isn’t; and scarcity is even further amplified by the bay taking up space in this inner-ring), our square kilometre area within a five kilometre circle would be just shy of 80 square kilometres.

If we then consider the next 5-10 kilometre band as a donut, this internal area measures some 235 square kilometres. That is more than four times the available land mass of the 5km radius within the donut.

And then if we measure the 10-15km donut (which by now is shaped more like a frisbee), the land area is now some ~400 square kilometres. And so on.

Inner-ring beauties are hard to come by, and they are expensive. They are hard to secure, because buyers bid with a heart full of emotion. But when the market shifts from bear to bull, they certainly can provide some irrational results.