A new report by RiskWise Property Research reveals that the West Gate Tunnel Project in Melbourne will have both positive and negative impact on property prices.

The $6.7 billion tunnel was planned to reduce the congestion in the city by taking about 28,000 vehicles off West Gate Bridge and 22,000 vehicles off Bolte Bridge daily, and removing more than 9000 trucks from local streets, helping reduce peak travel time by up to 20 minutes.

The project, which began early this year and is due to open in 2022, will reduce urban traffic woes well into the future with the city’s population expected to grow to five million by 2021, according to demographer Bernard Salt.

While the benefits are many in terms of traffic decongestion and new job generation, it’s not all good news for the property market, says RiskWise CEO Doron Peleg.

Enumerating the benefits, Peleg said the West Gate Tunnel is expected to provide a $11 billion boost to the Victorian economy, and dwellings located in good proximity to transport hubs will have much greater access to the CBD, which translates into solid capital growth projections, at least for houses.

This is particularly so for residential properties in Yarraville and Footscray, which have already enjoyed strong demand and would deliver outstanding capital growth in the long term.

According to Peleg, the demand and capital growth patterns of Sydney's inner-west suburbs are being replicated in the inner-city suburbs of Melbourne. In Sydney, factors such as proximity to the CBD, relative affordability (five years ago) and gentrification saw demand increase with very strong property capital growth of 92.7 percent over five years and solid capital growth predicted in the medium-to-long term.

However, the same cannot be said for units in Melbourne where there is a problem of oversupply. RiskWise research shows that areas with a high level of stock and an elevated number of approvals and units in the pipeline suffer from poor and often negative capital growth.

While unit oversupply remained a concern, the new infrastructure would likely improve demand, mitigating the risk to some extent.

Proximity to high traffic areas is another risk factor for the property market with dwelling prices affected due to poor demand for both houses and units.

Additionally, about 350 houses sitting above the tunnel, which runs at least 18 metres below may suffer damage from underground boring; though they will be suitably compensated by the government, this is another risk that may reduce demand for these properties.