A top researcher is warning property investors to be “a little bit cautious” when looking to invest in Melbourne or Brisbane.

While several signs were pointing to strong growth in the cities, residential property investors need to look carefully at the market, urged Tim Lawless of CoreLogic RP Data

He said that on the back of Melbourne’s seemingly strong performance, a closer look showed the cracks.

“I think Melbourne has been a strong market, but when you start to dissect the market, look at the different geographies, the inner city apartment market of Melbourne isn’t functioning very healthily,’’ he said.

“We’re seeing high supply levels. When you look at the proportion of loss making sales in Melbourne’s inner city apartment market, it’s getting up around 20% of all re-sales are making a gross loss.”

While this was something to consider, Lawless did not want to deter investors from the city.

“When you look at Melbourne broadly though it’s still showing quite a decent rate of capital gain but I would be showing some caution around the inner city apartment market, and to a lesser extent, the outer fringe new housing market as well.’’

Lawless said issues around property investment in Brisbane were largely situated around an oversupply of housing.

“Any market where we’re seeing a large amount of new supply in a particular segment, in very confined geographies I think deserves some caution,” he said.

“We are seeing that in Brisbane’s inner northern corridor and a lot of new supply coming out of that marketplace. We haven’t seen much new supply prior to this cycle so it is a bit of catch-up happening in that area and of course the area is zoned for high densities now.’’

Lawless said investors also need to keep an eye on developments in the rental market.

“Look at rental markets as well, “he said.

“It looks to me based on a cursory analysis of that sort of region that rents are holding their own. In fact, vacancy rates seem to be quite low as well so that says to me that those markets are still relatively healthy from both an investor demand and also a rental demand.”

For more crucial insights from Tim Lawless, click here to view the interview in full.