Melbourne Property Prices: What’s Really Happening and What to Expect In 2025
Melbourne’s property market has seen unique fluctuations recently, shaped by both regional and broader economic factors. While market performance has lagged behind some other Australian capitals, a combination of economic challenges, population growth, and housing policies is creating both risks and opportunities for buyers and investors. This post will dive into current market conditions, key challenges, and strategic areas for investment, providing a comprehensive view of what the coming months may hold for the Melbourne real estate landscape.
Melbourne’s Recent Market Performance
In comparison to other Australian capitals, Melbourne’s property market has experienced slower growth. CoreLogic data shows that dwelling values in Melbourne have dropped by 0.2% in the past month and 1.9% over the past year, currently sitting around 4.4% below their March 2022 peak. This stands in contrast to cities like Sydney and Brisbane, which have shown more robust price growth. Despite this slower price movement, Melbourne remains a busy market, particularly in the auction sector. For example, last week saw over 1,290 auctions, the third-highest volume of the season, with a preliminary clearance rate of 66.5%, reflecting sustained buyer interest in specific segments.
Economic and Policy Challenges Impacting Melbourne Property
Melbourne’s slower growth is not solely due to market dynamics; economic and policy factors play significant roles. Victoria’s recent economic performance has been dampened by a net decline in business numbers, a high tax burden, and higher payroll taxes affecting large businesses. This economic climate, combined with Melbourne’s extended lockdowns during the pandemic, has stunted growth in the property market. Additionally, stricter tenancy regulations and increased land taxes have made Melbourne less appealing to property investors compared to other states, as these measures add to the cost and complexity of property ownership.
For potential investors, however, these challenges could present a unique entry point. Melbourne’s market may stabilise as economic conditions improve, and buying now could yield rewards as the market begins to recover and grow again in the long term.
Long-Term Growth Potential for Melbourne Property
Despite short-term slowdowns, Melbourne’s fundamentals for long-term property growth remain strong. Population growth is one of the key drivers of this positive outlook. Victoria led Australia in population increase recently, adding over 183,000 new residents, primarily through overseas migration. Significantly, the state is also seeing migration from other parts of Australia, putting additional pressure on housing demand. Yet, Melbourne’s housing supply remains limited. The number of dwellings under construction has decreased, and Victoria is on track for its lowest level of housing completions in a decade, suggesting that demand-driven price increases could be on the horizon.
Melbourne’s Affordability Advantage
One factor setting Melbourne apart from other capitals is its affordability relative to Sydney. A typical Melbourne house costs around 41% less than a comparable house in Sydney, marking the largest gap between these two cities in two decades. This affordability could be a significant attractor for both buyers and investors, as Melbourne’s property prices may eventually close this gap, aligning with historical trends. Melbourne’s outer suburbs, in particular, offer more affordable entry points that appeal to first-time buyers and investors alike.
Melbourne’s Tight Rental Market
Melbourne’s rental market is facing immense pressure. Vacancy rates have dropped to around 1.5%, far below the balanced market range of 2-2.5%, and rental prices have surged by over 9% in the past year. This combination of high demand and limited rental stock suggests a strong market for investors looking for steady rental returns. Properties in well-connected areas or those near amenities are especially likely to command high rental yields in the current climate.
Government Measures to Boost Housing Supply
To address Melbourne’s housing shortage, the Victorian government has introduced policies aimed at stimulating new construction. These include a 12-month reduction in stamp duty for off-the-plan units, townhouses, and apartments, as well as plans for 50 new activity centres intended to facilitate multi-storey residential developments. While these initiatives are steps toward improving supply, their effects will take time, as new developments will not immediately alleviate the demand pressures in the market.
Top Melbourne Investment Opportunities
In light of these trends, there are several areas in Melbourne where buyers and investors may find attractive opportunities:
Family-Friendly Homes in Gentrifying Suburbs: Middle-ring suburbs offer established homes ideal for families, with good access to schools and community amenities. These areas are experiencing gentrification, making them appealing for owner-occupiers and investors alike.
Townhouses in Middle-Ring Suburbs: Townhouses are increasingly popular as a middle ground between standalone houses and apartments, especially as property prices rise. Suburbs such as Preston are seeing growth in townhouse developments, which appeal to both young families and downsizers looking for an affordable but well-located property.
Premium Apartments in Key Inner Suburbs: Areas like South Yarra, Richmond, and Carlton are seeing renewed demand for boutique, high-quality apartments, particularly those with proximity to public transport, dining options, and recreational spaces. Two-bedroom apartments in these neighbourhoods are well-positioned to provide strong rental yields and long-term capital growth.
Market Forecast: Looking Toward 2025 and Beyond
Melbourne’s property market outlook is promising, with various analysts forecasting strong price growth over the next few years. Oxford Economics, for example, projects a 21% increase in house prices and a 20% rise in unit prices by mid-2027. This growth trajectory aligns with Melbourne’s historical trend of steady gains over time. Savvy investors may benefit from this projected growth, especially if they buy now when prices are relatively stable and begin to appreciate as Melbourne’s market picks up momentum.
Conclusion
In summary, Melbourne’s property market presents a unique landscape of challenges and opportunities. While recent performance has been subdued compared to other capitals, strong fundamentals—such as robust population growth and high quality of life—position the city for long-term appreciation. Economic and policy challenges persist, but they may provide strategic entry points for buyers and investors ready to navigate Melbourne’s complex market. For those seeking value, now may be an opportune time to act, as Melbourne is poised for a potential upswing in the coming years.
Whether you’re a first-time buyer, investor, or simply exploring Melbourne’s real estate, understanding these market dynamics can help you make informed decisions and position yourself to benefit from the city’s ongoing evolution.
