Melbourne in 2025: The Next Hotspot for Property Investors?

Melbourne’s property market, historically one of Australia’s strongest, is at a pivotal moment in 2025. After a period of price corrections and uncertainty, the city is now showing clear signs of renewed growth and fresh opportunity. As migration rebounds, new policy incentives emerge, and undersupply intensifies, property investors are closely examining whether Melbourne could become the nation’s foremost investment destination in the coming years.

This comprehensive, up-to-date analysis unpacks Melbourne’s investment fundamentals, exposes key risks, explores optimal locations and property types, and provides trusted data and expert insight from a range of leading Australian property sources.

The State of the Melbourne Market in 2025

Key Indicators

• Market Recovery: Home prices have risen for four consecutive months as of mid-2025, reversing a challenging 2024.
• Median Dwelling Value: As of July 2025, the median Melbourne home price is approximately $818,000, up 1% over the last year, though still below the March 2022 peak.
• Rental Crisis: Vacancy rates remain at decade lows (about 1.1% in July 2025), with rental prices continuing to climb.
• Sales Activity: Listings are subdued, with new listings 16% below the five-year average, but buyer demand is strong, evidenced by auction clearance rates and rapid sales.
• Population Growth: Melbourne leads the nation with annual population growth of around 2%, creating continual housing demand.

Melbourne Market Data (July 2025)

Indicator Value Source

Median price $818,000 CoreLogic

Quarterly price growth +1.1% CoreLogic

Auction clearance rate 72% Domain

Rental vacancy rate 1.1% SQM Research

Population growth (annual) +2% ABS

Demand Drivers: Why Investors Are Targeting Melbourne

1. Population and Migration

• Melbourne’s population is surging, with projections trending towards 9 million by 2050.
• The influx is driven by overseas and interstate migration, as well as Melbourne’s enduring international student appeal and lifestyle reputation.
• This growth necessitates 1.6 million new homes and massive infrastructure expansion, ensuring strong demand for decades.

2. Undersupply & Construction Shortfall

• Building approvals and completions remain at record lows, intensifying competition for both homes and rentals.
• Listings are well below average and construction bottlenecks continue due to elevated costs and developer caution.

3. Relative Value and Market Position

• Melbourne’s dwellings are more affordable relative to Sydney and even Brisbane, attracting both owner-occupiers and yield-driven investors.
• The downturn of 2023–2024 reset prices, providing a countercyclical entry opportunity.

4. Infrastructure and Urban Renewal

• Billions in state and federal investments are expanding transport corridors, new schools, hospitals, and employment hubs.
• Government policy aims to channel growth into “activity centers” and transit precincts, supporting capital and rental growth well beyond 2025.

What’s Hot: Suburb and Property-Type Performance

Top-Performing Assets (2025)

• Family-Friendly Houses: Owner-occupier demand is robust in established inner and middle-ring suburbs (e.g., Mount Waverley, Glen Waverley, Ringwood, Essendon, Bentleigh, Cheltenham, Mentone).
• Townhouses & Villa Units: Smaller land components and more attainable pricing fuel investor and family demand in suburbs such as Bentleigh, McKinnon, Reservoir, and Preston.
• Quality Apartments: Well-located, boutique low-rise units near schools, universities, and transport hubs are regaining favor, especially with young professionals/downsizers.

Asset Type 2025 Trend Notes

Family homes (est. suburbs) Strongest capital growth, low vacancy Limited supply, premium on size/location

Townhouses/Villa units Fastest-rising demand among younger families Affordability, location, lifestyle appeal

Established, boutique apartments Renewed interest, stable rents Scarce supply, avoid oversupplied high-rise

Locations to Watch and Caution

• Opportunities: Gentrifying inner/middle suburbs poised for above-average price and rent growth.
• Risks: Outermost suburbs, especially those with supply surges or lacking infrastructure, may see less sustained growth. Oversupplied CBD and high-rise apartment districts historically lag on yields and capital gains.

Market Outlook and Expert Forecasts

Near-Term Forecasts

• Most major banks and researchers forecast dwelling price growth of 2–6% for Melbourne in 2025, with stronger gains possible in the apartment/townhouse sector.
• Rental yields continue to rise as vacancy stays low and migration adds demand.
• There remains upside as values are still 3–4% below their recent cyclical peaks.

Bank & Research Forecasts, 2025

Source House Price Growth Unit Price Growth

KPMG +3.3% +4.6%

ANZ +5.5% N/A

NAB +2.3% N/A

Westpac +2.0% N/A

Policies, Taxes, and Incentives: 2025 Landscape

Recent Policy Changes

• Stamp Duty: Major temporary off-the-plan (OTP) land transfer duty concessions extended to October 2026 for apartments, townhouses, and units—reducing upfront acquisition costs for investors and owner-occupiers alike.
• Tax Stability: While no new property taxes have been introduced in the 2025 budget, prior increases—such as on vacant land and emergency services levies—remain in place.
• Rental Reforms: Ongoing rules priorities tenant rights, periodic safety checks, and further compliance, impacting investor costs.

Key Risks & Challenges for Investors

• Affordability Constraints: Price recovery may be capped if wage growth doesn’t keep pace. First-home buyers, in particular, still face challenges from higher debt costs.
• Regulation & Compliance Overhead: Investors face additional compliance requirements for safety and energy standards.
• Construction Headwinds: Supply remains constrained due to higher material and labor costs, potentially squeezing short-term rental stock but adding long-term value to existing properties.
• Economic Uncertainty: Rate cut outlook is positive, but any inflation resurgence or economic shock could slow demand.

Strategic Guidance: Investor FAQs, 2025

Q: Is 2025 the Right Time to Enter the Market?

A: Most experts believe current conditions favor long-term investors, with sub-peak prices, rising demand, and high rent yields—particularly in established, amenity-rich locations.

Q: Where is the Growth Strongest?

A: Inner to middle eastern, northern, and bayside suburbs—especially those undergoing gentrification and infrastructure improvements.

Q: What to Avoid?

A: High-rise CBD apartments, outer fringes with poor connectivity, and markets with signs of oversupply pose the biggest risks to capital growth and yield.

Conclusion

Melbourne stands out in 2025 as a city at an investment crossroads: below-peak prices, roaring population growth, severe underbuilding, and a government newly focused on incentivizing both buyers and supply. While risks remain, the window for value-driven entry and sustained long-run gains is open for those who focus on quality assets in resilient, well-serviced suburbs. For property investors aiming to capitalize on the next wave, Melbourne’s combination of fundamentals and timing is difficult to ignore.