{"id":47576,"date":"2025-05-19T08:30:00","date_gmt":"2025-05-18T22:30:00","guid":{"rendered":"http:\/\/propertyupdate.com.au\/?p=47576"},"modified":"2025-05-20T08:35:30","modified_gmt":"2025-05-19T22:35:30","slug":"property-investment-melbourne","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/property-investment-melbourne\/","title":{"rendered":"Melbourne property market forecast for 2025 | Is it a good time to invest in Melbourne?"},"content":{"rendered":"
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Are you considering investing in Melbourne\u2019s property market? <\/strong><\/p>\n

You\u2019re not alone \u2014 and you\u2019re certainly not too late.<\/strong><\/p>\n

Melbourne continues to rank as one of Australia\u2019s most desirable cities for property investors, and for good reason.<\/p>\n

It\u2019s a world-class, vibrant, and growing city with strong population growth, a diverse economy, and a robust long-term property market performance.<\/p>\n

After the challenges of the past few years \u2014 interest rate hikes, construction bottlenecks, and affordability concerns \u2014 savvy investors are now eyeing this window of opportunity to buy in to Melbourne while the market is still in recovery mode.<\/p>\n

But here\u2019s the thing: not all Melbourne suburbs make good investment locations<\/strong>, and not all properties will outperform.<\/p>\n

The secret to successful property investment in Melbourne isn\u2019t just buying in the right city \u2014 it\u2019s about buying the right property in the right suburb at the right time<\/em>\u2026 and holding it for the long term.<\/p>\n

In this comprehensive guide, I\u2019ll share everything you need to know about investing in Melbourne in 2025 and beyond \u2014 from the best performing suburbs and price trends, to where we are in the property cycle, and what types of properties are likely to deliver strong capital growth and rental returns.<\/p>\n

\"Why<\/a><\/p>\n

Is Melbourne a good place to invest?<\/span><\/h2>\n

Over the last four decades, Melbourne has been Australia\u2019s strongest performing housing market; however, over the last couple of years it has underperformed.<\/p>\n

In fact, over the last 12 months dwelling prices have been basically stagnant, while many other capital cities enjoyed double digit capital growth.<\/p>\n

Melbourne's property values are still -5.4% below their peak of March 2022.<\/p>\n

However, market sentiment has improved now that interest rates have started to move lower and Corelogic reports that Melbourne house prices increased for the last 2 months.<\/p>\n

\"Housing
\nHere is the latest Corelogic data on the median property prices for Melbourne.<\/p>\n

\n\n\n\n\n\n\n\n
Property<\/th>\nMedian price<\/th>\n\u0394 MoM<\/th>\n\u0394 QoQ<\/th>\n\u0394 Annual<\/th>\n<\/tr>\n
All dwellings<\/td>\n$786,158<\/td>\n0.2%<\/td>\n1.0%<\/td>\n-2.2%<\/td>\n<\/tr>\n
Capital city houses<\/td>\n$934,500<\/td>\n0.1%<\/td>\n1.0%<\/td>\n-2.0%<\/td>\n<\/tr>\n
Capital city units<\/td>\n$610,327<\/td>\n0.4%<\/td>\n1.0%<\/td>\n-2.6%<\/td>\n<\/tr>\n
Regional dwellings<\/td>\n$576,576<\/td>\n0.3%<\/td>\n1.0%<\/td>\n-0.9%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

Source:<\/strong> CoreLogic, 1st May 2025<\/em><\/p>\n

<\/div>\u00a0The fact that the Melbourne housing market has not performed as strongly as some other capitals over the last year creates a window of opportunity for strategic property investors as Melbourne property values significant upside potential.<\/p>\n

The average price of a Melbourne standalone house is the lowest it has been against its Sydney equivalent in around twenty years.<\/p>\n

Sydney has always commanded a premium versus Melbourne, but recently that premium has hit historic extremes.<\/p>\n

The latest data show the typical house in Sydney currently fetches a 70% premium relative to the typical house in Melbourne, or put differently median house prices in Melbourne are approximately 41% cheaper than in Sydney.<\/p>\n

This gap represents a more than $600,000 difference in median house prices at the end 2024.<\/p>\n

This is the cheapest houses in Melbourne have been relative to Sydney at any point in the last 20 years, and a significant deviation from the average discount over the past decade (29%).\"Sydney<\/a><\/p>\n

The above factors means there is significant \"inbuilt equity\" in the undervalued Melbourne housing market at present, but not all Melbourne property is created equal - you need to know where to buy, what to buy and what suburb is ripe for investment.<\/p>\n

One thing is becoming clear, if you wait around until interest rates fall further, all you\u2019ll be doing is playing tug-of-war with owner occupiers over the best properties for sale.<\/p>\n

Buying properties below replacement cost in a market poised for recovery could yield substantial returns as the economic conditions improve and interest rates eventually fall further.<\/p>\n

Not only will strategic investors benefit from Melbourne\u2019s long-term growth, but they will also get a \u201cfree kick\u201d as the Melbourne property market catches up and reverts to its loan term mean growth rates.<\/p>\n

Why the underperformance of the Melbourne market?<\/span><\/h2>\n

There are various reasons why Melbourne property market is under performed but the main one is lack of consumer confidence and poor state economic activity.<\/p>\n

These are two major factors that affect our housing markets.<\/p>\n

Some commentators still blame the harsh COVID lockdowns imposed at the height of the pandemic which influenced some people to move to the regions, but in my mind that was now 5 years ago and not really relevant today.<\/p>\n

I believe Melbourne's under performance is related to lack of confidence in the state government and it's more economic performance.<\/p>\n

Victoria has experienced significant economic setbacks, particularly evident in the net reduction of 7,606 businesses during the financial year 2022-23, according to the Australian Bureau of Statistics.<\/p>\n

One of the main reasons for the decline in business numbers in Victoria is the aftermath of the state's extensive lockdowns.

<\/div><\/p>\n

Another critical factor is the increased tax burden on businesses.<\/p>\n

The Victorian government introduced a payroll tax surcharge in the 2021-22 State Budget as part of a \u201cmental health and wellbeing levy\u201d, targeting businesses with a payroll of $10 million or more.<\/p>\n

This was followed by a further increase in payroll taxes in the 2022-23 State Budget as part of a 10-year COVID debt levy to repay the government\u2019s substantial borrowing during the pandemic.<\/p>\n<\/div>\n

The economic struggles of Victoria have had a direct impact on the property market.\u00a0Where the economy and jobs go, the property market follows.<\/p>\n

At the same time\u2026<\/p>\n

Property investors have been getting disillusioned with Melbourne<\/span><\/h2>\n

\"Property<\/a><\/p>\n

Much has been said about the Victoria State governments increase in property taxes to offset the significant debt incurred from their ongoing infrastructure project and the new and costly obligations in post on landlords to achieve minimum rental standards.<\/p>\n

Investors are increasingly abandoning the Melbourne market, driven away by stricter residential tenancy legislation and higher land taxes.<\/p>\n

Recent reforms in tenancy laws have tipped the balance heavily in favour of tenants, making it more challenging for landlords to manage their properties effectively.<\/p>\n

Additionally, the Victorian government's decision to hike land taxes has further compounded the woes of property investors.<\/p>\n

Despite the current struggles, there is a significant opportunity in Melbourne's property market.<\/p>\n

\"pencil<\/picture><\/span>

Note: <\/span> Property prices are considerably below replacement costs, creating a unique buying opportunity. <\/p><\/div><\/div>\n

This situation is similar to where Brisbane and Perth were three years ago.<\/p>\n

Back then, both cities were experiencing a period of underperformance, but those who bought during that time have since seen significant capital growth as the markets recovered.\r\n\r\n\r\n

<\/div><\/p>\n

And even though some investors with a short term focus have left the market, we\u2019re seeing more and more interstate investors now seeing the current market as a window of opportunity.<\/p>\n

I\u2019ve been around long enough to see this pattern play out before.<\/p>\n

The best opportunities often emerge from assets that have had a period of underperformance, while the biggest risks often lie in whatever has been running hot.<\/p>\n

This isn\u2019t to say that any Melbourne property is guaranteed to outperform, but it's time to remember the saying: \"Be greedy when others are fearful, and fearful when others are greedy.\"<\/strong><\/p>\n

At Metropole Melbourne<\/a>\u00a0we\u2019re finding that strategic investors and homebuyers are back actively looking to upgrade, picking the eyes out of the market.<\/p>\n

\n

It is clear that Melbourne has been constrained by several factors that are transitory<\/strong> in nature, and over the longer term, that will either improve under a new government or be integrated into market expectations.<\/p>\n

At the same time, the long-term fundamentals of Melbourne<\/strong> remain sound with strong population growth, a diverse economy with robust industries and employment opportunities, an increasing\u00a0 knowledge based economy and significant new infrastructure in the pipeline, making Melbourne\u00a0 one of the most liveable cities in the world.<\/p>\n

\"Melbourne<\/a><\/p>\n

Cheaper properties are recording stronger price growth<\/span><\/h2>\n

Melbourne dwelling prices remain below their 2022 peak,\u00a0 and more affordable properties (in the bottom quartile) have outperformed over the last few years.<\/p>\n

There\u2019s been a shift towards outer suburban areas, where additional supply is greater and prices are lower.<\/p>\n

In fact activity at the top end of the Melbourne property market has stalled with few high value properties selling over the last couple of years, and this obviously affects the median prices being reported for Melbourne.<\/p>\n

This shows how Melbourne\u2019s most expensive homes recorded sharp price falls.<\/p>\n

\"Melbourne<\/a><\/p>\n<\/div>\n

This situation in Melbourne today is similar to where Brisbane and Perth were three years ago.<\/p>\n

Back then, both cities had experienced a period of underperformance, but those who bought then have since seen significant capital growth as these markets recovered.<\/p>\n

This means that as interest rates fall further, and when Melbourne gets his Mojo back, the Melbourne housing market will likely outperform other capital cities, driven by strong population growth, economic recovery, and relative affordability.<\/p>\n

Despite confidence returning as interest rates fall further and more buyers return to the Melbourne property market, affordability will still be an issue for many potential buyers, and buyers will only be able to pay up to the limit of what they can afford, so I would only invest in locations where wages are increasing faster than average and residents have multiple streams of income, not just wages.<\/p>\n

This means it will be important to investing in Melbourne's more affluent inner-ring suburbs and the gentrifying middle-ring suburbs which will outperform the cheaper suburbs, where residents will still find it difficult to afford to buy a home.<\/p>\n

What is the Victorian government going to do about the situation?<\/span><\/h2>\n

Recently the Victorian government has stepped up to encourage more housing supply with two key policies designed to give developers a push to build.<\/p>\n

Firstly, from October 21, 2024, there has been be a 12-month reduction in stamp duty for off-the-plan units, townhouses, and apartments<\/strong>\u2014regardless of the price tag.<\/p>\n

This should make these properties more attractive to both developers and buyers.<\/p>\n

Secondly, to boost density around public transport, the government has identified 50 new activity centres<\/strong> where they\u2019ll be streamlining the planning process for multi-storey residential developments.<\/p>\n

The goal is to fast-track much-needed housing in these areas.<\/p>\n

Now, when we look at the numbers from the ABS, things are a bit concerning.\r\n

<\/div><\/p>\n

At the moment, there are around 63,700 dwellings under construction across Victoria\u2014that\u2019s 11% fewer than what we saw a year ago, and most of that drop is due to the slowdown in high-density apartment projects.<\/p>\n

While detached houses under construction are still above the 10-year average, they've fallen by 19% over the past year.<\/p>\n

If you look at the bigger picture, 2024 is likely to see the lowest level of new housing completions in Victoria in the last decade, and new housing starts are continuing to decline.<\/p>\n

The approval pipeline isn\u2019t looking great either\u2014approved dwellings in Victoria are sitting 14% below the 10-year average. This all points to a further tightening supply in the near future.<\/p>\n

On the flip side, demand is booming.<\/strong><\/p>\n

Victoria\u2019s population is growing at near-record levels, increasing by over 183,000 people in the 12 months to March 2024, which is the biggest jump of any state in Australia.<\/p>\n

A big driver of this has been overseas migration, and for the first time since 2020, Victoria has also managed to attract people moving from other states.<\/p>\n

In terms of housing finance, things are also picking up.<\/p>\n

Total housing finance commitments in Victoria have been steadily climbing and are now sitting 13% above the 10-year average as of August 2024, with a whopping $86.2 billion financed.<\/p>\n

Over the past year, monthly finance commitments have risen across the board.<\/p>\n