News & Media

By Matthew Hughes
Managing Director, Capital Property Advisory
Board Director, Property Investment Professionals of Australia (PIPA)

While the Melbourne property market has underperformed in recent years compared to other major capitals, we believe that narrative is beginning to shift. Importantly, savvy investors would be wise to look beyond the lagging indicators and consider what our team has been observing on the ground in Victoria in recent months.

Our National Investment Advisory Committee identified Melbourne as a market of interest back in mid-2024. On a relative value basis, Melbourne property appeared increasingly “cheap” – for lack of a better term. But price alone doesn’t equate to opportunity, so we looked deeper.

What we found was a market shaped not by structural weakness, but by short-term policy decisions and sentiment shocks.

What Has Driven Melbourne’s Underperformance?

Melbourne’s softer post-COVID performance was not without justification. The state endured the country’s most prolonged lockdowns under the Andrews government, prompting a mass exodus of residents and resulting in sustained negative interstate migration. This had a clear dampening effect on property demand.

Compounding the issue, the current Victorian government’s strategy to address its significant debt burden – largely accrued during that same period – has been to aggressively target property investors and landlords. A slew of new and increased taxes has seen many long-term investors exit the market.

Interestingly, the bulk of those properties have been sold to owner-occupiers, not other investors. As a result, Melbourne has seen a net reduction of approximately 24,000 rental properties – shrinking the rental pool just as population growth and housing demand begin to accelerate again.

What’s Happening on the Ground?

While headline data naturally lags, we’re already seeing early signs of momentum returning to the Melbourne market. Buyer enquiry levels are up. Auction clearance rates have improved. And perhaps most notably, rental pressure is intensifying due to the aforementioned supply-demand imbalance.

Investors who remained in the market – or those who entered 6 to 8 months ago alongside our advisory committee – are now benefiting from rising yields and ample stock to choose from. For those prepared to act while sentiment remains subdued, the short- to medium-term upside is increasingly compelling.

Strengths, Weaknesses, and What Lies Ahead

Melbourne’s key strengths include its relative affordability, a strong rebound in international migration, and sound economic underpinnings. Despite concerns about state debt levels, Victoria recently jumped from fourth to second in CommSec’s latest State of the States report – now sitting just behind Western Australia. Many leading indicators suggest powerful tailwinds for both rental and capital growth.

The main weaknesses remain policy related, and Melbourne is not for everyone. Investors who can’t carry higher costs and lower yields for a period of time, should stay away. Investor sentiment is still in recovery mode, with uncertainty (and in many cases, misunderstanding) around current and future tax implications continuing to suppress confidence. That said, it’s difficult to see how conditions could get materially worse. The “Trump-style” tax-and-tariff approach towards investors is already showing signs of political backlash, particularly as dwindling rental stock drives up rents and disproportionately impacts lower-income households.

Looking ahead, we anticipate modest but consistent growth over the next 12 months, followed by more pronounced gains as confidence continues to build. In 2–3 years, I believe Melbourne will be widely regarded as the comeback story of the national property cycle – and those who failed to act early may be left with a severe case of non-buyer’s remorse.

Where Are We Buying?

Our team is focused on well-established inner and middle-ring suburbs with strong owner-occupier appeal, low crime rates, tight vacancy rates, proximity to public transport and the CBD, desirable school zones, and high-quality local amenity – among many other data-driven criteria we use to assess future growth potential.

For yield-sensitive investors or those with more constrained budgets, we’ve also identified a select group of regional Victorian locations that we believe are positioned to outperform in the coming years.

Final Thoughts

Markets don’t move in straight lines – and broad changes in sentiment often lag well behind fundamentals. While Melbourne hasn’t led the national market in recent years, the foundations for a strong recovery are now in place, just as other cities begin to approach their cyclical peaks.

In my view, bold investors who act decisively – before the data reflects what we’re already seeing on the ground – will be the best positioned to benefit from Melbourne’s next growth cycle.