Guide to Melbourne Property Market, House prices and Investments

Looking to make a smart property investment in one of Australia’s major cities? The housing market in Melbourne presents compelling opportunities. Not just renowned for its robust economy and high liveability, this city also consistently delivers strong long-term capital growth, making it an attractive prospect for savvy investors.

This all-in-one guide to the Melbourne property market explores current and past trends, pricing, market drivers, and factors influencing investment for those looking to maximise their returns in this thriving city.

Current Market Overview

Price cycle since 2020: Boom, correction, and modest rebound

Melbourne’s property market has experienced distinct phases in its price cycle since 2020. Here is a closer look at these shifts to help inform your investment decisions:

2020-2021: Moderate growth

Following the initial economic adjustments of 2020, government stimuli, historically low interest rates, and evolving lifestyle preferences began to fuel a rise in home values. Buyer preferences shifted towards larger homes, and there was a notable increase in buyer activity. While not yet the peak of the boom, this period set the stage for the rapid growth that followed.

2021-2022: Boom

This period witnessed an extraordinary boom in the Melbourne property market. By 2021, the sporting capital of Australia recorded an annual rise of 18.6%, and a 5.8% increase for the December quarter, boosting the average house price to $1,101,612. This aggressive growth was driven by a strong demand-supply imbalance, continued low interest rates, and high buyer confidence.

2022-2023: Downturn

As inflation accelerated, the Reserve Bank of Australia (RBA) initiated a series of rapid interest rate hikes in 2022, leading to a notable cooling of buyer sentiment and a market correction. Increased mortgage costs and reduced housing affordability resulted in a decline in prices, particularly impacting premium suburbs and inner-city apartments.

2024-now: Trough

Since 2024, the Melbourne property market has been navigating a “trough” phase. This period is characterised by prices reaching their lowest point before a potential recovery, with the slight decline into 2025 reflecting the tail end of the market’s adjustment. While current changes might appear minimal or slightly negative, this phase is crucial for stabilisation. Underlying demand drivers, such as strong population growth and expected interest rate cuts, position the market for future growth.

To provide a clearer picture of these market movements, let’s take a look at the median sales prices for Greater Melbourne:

Role of interest rate cuts and supply constraints

Interest rate policy remains a vital driver of Melbourne property prices. It’s simple — if banks charge a higher interest rate on home loans, potential buyers are less likely to invest unless they already have excess cash flows. While the rapid rate hikes of 2022 significantly cooled the market, the Reserve Bank of Australia’s (RBA) cash rate cuts initiated in February 2025 have started to ease borrowing conditions and influence buyer sentiment.

We’ve observed this positive response in several SA3 regions since then, with faster growth in their 3-month rolling median trends. Notably, Essendon, Darebin (North), and Stonnington (East) have shown renewed momentum. However, some SA3s, like Cardinia, Macedon Ranges, and Bayside, did not respond to these rate cuts.

Simultaneously, persistent supply dynamics influence prices. While Melbourne’s overall housing supply isn’t as constrained as some other major Australian cities, leading to a more moderate growth profile in recent years, certain regions with decreasing listings are showing distinct signs of price growth. For example:

• Frankston: A -7.62% drop in listings over the last 12 months (since September 2024), leading to house price growth from late 2024.
• Casey (North): Listings stabilised from August 2024 and began falling in October 2024 (down -6.3% over the last 12 months), with house prices improving since September 2024.
• Brimbank: After months of increasing, listings began falling from November 2024 (down by -3.3% over the last 12 months), resulting in house price growth since November 2024.

This ongoing imbalance between demand and localised supply constraints continues to influence Melbourne’s property growth, especially in middle-class family suburbs where limited listings are pushing values.

Melbourne House Prices & Trends

Median house and unit prices

Currently, Melbourne’s median house price hovers around $845,000, experiencing a slight -0.6% shift over the past year. Units, at $579,000, saw a similar drop of -1.9%.

Suburb growth and performance

The top 3 high-performing suburbs (>1000 houses) with the highest house price growth include:

These suburbs often benefit from factors like affordability, family-friendly facilities, infrastructure upgrades, and strong rental demand.

Cost of Buying & Owning

Investing in Melbourne property comes with several additional costs beyond the purchase price. For a 3-bedroom house of $735,000, assuming an 80% Loan-to-Value Ratio (LVR), key financial considerations include:

Acquisition costs

• Deposit: $147,000
• Stamp duty: Around $39,170
• Conveyancing fees: $1,500
• Building and pest inspection: $600

Annual holding costs

• Property management fee: Around $2,145 (7.50% of annual rent)
• Maintenance: Around $1,500
• Council rates: Around $1,500
• Water rates: Around $280

In this example scenario, the initial monthly cash flow after tax is projected to be negative, starting around -$1,690 in Year 1. This monthly deficit is expected to gradually decrease over time, potentially becoming positive by Year 20 (around +$347). Note that actual cash flow will vary based on individual circumstances, fluctuating interest rates, rental growth, tax implications, and other market factors.

While these costs can be substantial, the long-term benefits, including Melbourne property growth, potential tax deductions, and capital appreciation, often outweigh the extra costs. With a well-guided investment strategy and end-to-end property investment services, you can effectively navigate these expenses and maximise long-term returns.

Key Factors Driving the Market

Population growth and housing undersupply

Melbourne’s population growth remains a significant driver. In 2023-24, Greater Melbourne experienced a 2.74% population growth, with the overall population forecast to hit 6.2 million by 2030-31, making it Australia’s fastest-growing city. Net migration, both international and interstate, continues to fuel housing demand.

However, it’s important to understand the nuance of housing supply in Melbourne. While dwelling completions still lag behind targets in some areas, the overall supply of listings is not as tightly constrained as in some other major Australian cities. For instance, monthly listings for sale in Greater Melbourne generally hovered between 23,000 and 27,000 for much of 2023 and 2024, reaching 29,300 in January 2025 before settling to 24,047 in June 2025. 

This relatively consistent level of listings, combined with strong population growth, suggests that while there is demand, the market isn’t experiencing the same acute undersupply pressures seen elsewhere. This contributes to a more moderate price growth profile compared to areas with severe undersupply, though it still places upward pressure on rental prices.

Infrastructure investment

Government-backed infrastructure projects are transforming the city. These initiatives enhance connectivity, liveability, and economic activity across Melbourne’s suburbs, driving demand in neighbouring areas. Some major projects include:

• Suburban Rail Loop (East): A $35 billion investment creating a new rail line connecting key suburban areas.
• North East Link: Valued at $16 billion, this vital freeway link is completing Melbourne’s ring road.
• Biomedical Precinct Parkville: A collaborative $14 billion investment (Victorian Government and University of Melbourne) expanding a world-class hub for medical research and innovation.
• Metro Tunnel Project: This $13 billion project is delivering twin 9km rail tunnels through the city centre.
• Melbourne Airport Rail: A $10 billion project that will provide a dedicated rail service connecting Melbourne’s CBD to the Tullamarine airport and regional hubs.

These projects not only support local economies but also drive demand, particularly in areas along new transport corridors, where both homeowners and property investors in Australia show growing interest.

Foreign investor rules and market access

Australia maintains specific regulations for foreign investors, including approval from the Foreign Investment Review Board (FIRB) and additional stamp duty surcharges. Note that from April 1, 2025 to March 31, 2027, foreign investors face temporary prohibitions on purchasing established dwellings, with limited exceptions primarily aimed at increasing housing supply.

While Melbourne attracts international capital, notably from Asia, due to its education sector and perceived growth potential, foreign investment is generally not a primary determinant of broad Australian property price movements.

However, the significant return of international students post-pandemic, combined with a persistent undersupply of rental housing, is driving renewed demand for inner-city apartment investments in Melbourne. This is more directly linked to the student population’s pressure on the rental market for accommodation, instead of foreign investment broadly driving purchase prices across the entire market.

Smart Investment Strategies for Melbourne

Capital growth suburbs vs. high-yield options

Unlocking success in Melbourne’s property market usually comes down to choosing the right investment strategy. Are you chasing substantial capital growth over the long haul, or is generating high rental yields your priority for immediate income?

For those prioritising long-term capital appreciation, these fast-growing suburbs have demonstrated strong house price growth, often driven by their established appeal, lifestyle amenities, and ongoing development:

Alternatively, for investors focused on consistent income and stable tenancies, these suburbs currently offer some of Melbourne’s most attractive rental yields:

Renovation vs. new builds: Which offers better ROI?

Strategic renovation projects can deliver excellent returns and improve rental appeal without being overly expensive, particularly in suburbs where adding value through upgrades or additions (like granny flats or duplexes) leads to both rental and equity gains.

However, purchasing new builds, especially in newly developed areas, presents several considerations for investors. A significant portion of their value is tied to the depreciating building itself (not the land), and they can face risks like oversupply and unreliable market data.

There’s also the practical concern of potential construction delays, which can extend the time before a property is ready for tenancy. For these reasons, properties that are immediately ready for occupancy are generally seen as more straightforward options.

Diversification: Units, houses, and commercial REITs

Building a resilient property portfolio in Melbourne hinges on smart diversification. By thoughtfully spreading investments across various property types and understanding their distinct advantages, you can tailor your approach to align with your financial goals.

Investors may choose to balance their housing portfolios with a mix of:

• Detached houses: Ideal for long-term capital growth, primarily driven by the appreciation of land value. In a city like Melbourne, where land supply can be constrained in desirable areas and the population is growing, standalone houses (especially established ones, not brand new or part of a land-house package) consistently demonstrate strong potential for significant equity gains.
• Apartments: Apartment investing is tricky. While they can be affordable and offer higher rental yields, there’s also a potential lack of value growth, particularly in inner-city areas with oversupply issues. If considering units, consider buying a unit block in a low to mid-density area — avoid newly developed apartments in high-rise areas.
• Commercial property trusts (REITs): For those seeking passive exposure, REITs offer a way to diversify into office, retail, and industrial assets without the need to self-manage them.

Outlook & Predictions

Forecasts for 2025-2027

Industry analysts remain optimistic about the Melbourne property market between 2025 and 2027. The active local economy, strong population growth, early cycle position, and relative affordability as a major capital city will likely push Melbourne towards a strong growth cycle ahead. 

Some key projections include:

• According to KPMG’s house price forecast in Melbourne, average house prices in Melbourne will surge 3.5% in 2025. In 2026, the growth is expected to be even bigger at 6%.
• Rental markets are tightening further, with yields improving across both metro and regional zones. KPMG expects annual rent growth to be in the mid-3% to mid-4% over the next two years.

Stable interest rates or even gradual cuts from late 2025 could fuel buyer confidence and mortgage affordability.

Risks ahead: Rate changes, policy shifts, and affordability

Despite the positive outlook, several risks demand buyer attention:

• Interest rates: While rate cuts are widely anticipated from mid-2025, unexpected shifts in inflation or global economic conditions could slow the pace of cuts, impacting borrowing capacity and buyer sentiment, and potentially moderating price growth.
• Government policy shifts: Recent changes to land tax thresholds and the expansion of the Vacant Residential Land Tax (VRLT) across Victoria, alongside restrictive rental reforms (introducing stricter rules on rent increases, evictions, and mandatory property standards), may impact investor sentiment and deter new investment.
• Affordability constraints: High property prices continue to challenge market entry, particularly for first-home buyers. Even with potential rate reductions, the substantial capital required for deposits and repayments in Melbourne’s higher-end suburbs could limit overall demand.

However, investors who remain disciplined and informed can successfully navigate these challenges. Consequently, they can benefit from sustained growth and income generation from the Melbourne property market.

Summary

Is Melbourne a good place to invest?

Yes, the Melbourne property market remains one of Australia’s most attractive investment destinations, provided you approach it strategically. The city offers diverse opportunities across residential homes and commercial real estate. Its long-term growth potential is significantly boosted by strong population growth and ongoing infrastructure investment.

However, a successful investment in Melbourne will require:

• A relatively larger budget (generally not under $600k).
• Comfort with potential negative cash flow due to generally lower yields.
• Patience for value growth, as short-term gains may not be rapid.

With a clear understanding of these market dynamics and expert guidance, investors can truly tap into Melbourne’s full potential.

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