Melbourne’s Property Market: A Hot Buy Opportunity Amidst Sluggish Growth

Australia’s property market is currently experiencing a two-speed dynamic, with some regions witnessing rapid home price growth while others, like Melbourne, are navigating a period of stagnation. For prospective buyers, especially first-time homeowners, this presents a unique opportunity to enter the market before conditions shift.

The Current State of Melbourne’s Market

Melbourne’s property market has recently shifted into low gear, primarily due to changes in land tax regulations and an increase in housing supply. According to the McGrath Report 2025, the median dwelling prices in Melbourne saw a modest increase of just 1.3% in FY24, making it the second-weakest capital city market in Australia, just ahead of Hobart. In contrast, regional Victoria experienced a slight decline in home prices, down by 0.5% during the same period.

One of the key factors contributing to this sluggish growth is the significant increase in housing supply. Over the past decade, Victoria has delivered 733,000 new homes, surpassing New South Wales, which completed 650,000 homes in the same timeframe. This influx of new properties has created a more competitive market, leading to relatively flat prices.

Tax Changes and Investor Activity

In January 2024, the Victorian Government made a controversial decision to lower the land tax-free threshold for investment properties from $300,000 to $50,000. This policy change has had a profound impact on investor activity, causing Victoria to rank towards the bottom for investor engagement this year. New investor lending accounted for only 30.7% of the state’s total housing finance commitments in April 2024, significantly below the national average of 37% and lower than other states like New South Wales (42.2%) and Queensland (38.2%).

The tax changes, coupled with rising interest rates, have prompted many existing investors to sell their properties. CoreLogic data indicates that Melbourne experienced a staggering 39.4% increase in new sale listings in May 2024 compared to the previous year, marking the largest surge in the country. Regional Victoria also saw a notable 42.6% increase in listings during the same period.

Rental Market Dynamics

Despite the challenges in the home buying sector, the rental market in Melbourne has shown resilience. As Victoria’s population surged by a national-high of 186,500 in the year leading up to December 2023, the demand for rental properties increased, driving up weekly rents. In FY24, median weekly rents for houses rose by 9.2%, while apartment rents increased by 7.5%, making it the second-highest increase among capital cities.

This environment has created a favorable landscape for first home buyers. With stable home values and less competition from investors, many have seized the opportunity to purchase their first homes. In June 2024, first home buyers constituted 32.1% of owner-occupier loan commitments in Victoria, surpassing the national average of 29.2%.

Future Prospects for Melbourne’s Property Market

Looking ahead, Melbourne’s property market is poised for potential recovery. The Department of Planning projects that Victoria’s population will continue to grow by an average of 125,000 people per year over the next decade. This growth, combined with ongoing constraints in the building sector—such as labor shortages and high material costs—will likely create upward pressure on property prices.

Infrastructure improvements are also on the horizon. The Metro Tunnel rail line project is set to be completed next year, benefiting residents near the Cranbourne, Sunbury, and Pakenham train lines. Additionally, the Suburban Rail Loop is expected to be completed by 2035, and the North East Link freeway project is slated for completion by 2028. These developments will enhance connectivity and accessibility, making Melbourne an even more attractive place to live.

A Vibrant City with Global Appeal

Melbourne’s reputation as one of the world’s most liveable cities has been reaffirmed by the Economist Intelligence, which ranked it among the top five most liveable cities for the past two years. This accolade reflects the city’s vibrant culture, diverse communities, and high quality of life, attracting new residents from across Australia and around the globe.

In conclusion, while Melbourne’s property market currently faces challenges, it also presents a rare opportunity for buyers to secure a foothold in one of the world’s most desirable cities. With a combination of strong population growth, infrastructure improvements, and a temporary lull in home prices, now may be the ideal time to invest in Melbourne’s real estate market before it rebounds.

John McGrath is the founder, Managing Director, and Chief Executive Officer of McGrath Estate Agents.