Melbourne emerges as bargain buy for property investors amid market recovery

Melbourne has become one of Australia’s cheapest capital cities for property investment, with new data revealing promising opportunities as the market shows signs of recovery.

The latest Home Price Index data from PropTrack shows Melbourne’s median house price rose 0.8 per cent in May to $782,000, continuing its recovery after a prolonged COVID-induced downturn.

Perth has overtaken Melbourne in median price for the first time in more than a decade, thanks to strong 8.4 per cent annual growth.

REA Group senior economist Anne Flaherty confirmed only Darwin and Hobart now have cheaper median house prices than Melbourne.

“Another thing is that because Melbourne is so much more affordable than most of Australia’s other capital cities, it’s the second cheapest city to rent in,” Flaherty said.

“So what that means is, it’s also most likely going to drive interstate migration into Melbourne as people being priced out of buying homes in the other capitals will potentially move to Melbourne.”

Melbourne has been identified as the Australian capital most likely to experience the strongest population growth during the next decade.

“When people first move to a city, they’re more likely to be renters than owner-occupiers for at least the first five years,” Flaherty said.

“What that means is that Melbourne has had an absolute surge in migration.”

“That means within a few years’ time, a lot of these people will be looking to buy their first home, and that’s going to lead to increased buyer demand.”

Home prices across Greater Melbourne have increased just 16 per cent compared to March 2020, which was extremely low relative to growth seen across other capitals.

“The Australian capital city average is actually 43 per cent over that time,” Flaherty said.

“Brisbane, Adelaide and Perth have all seen home prices go up.”

Melbourne’s housing supply relative to other capital cities contributed to its moderate price growth.

“This isn’t the story currently, but if we look at housing supply issues, they are long in the making and in the case of Melbourne, there was quite a long period there where we were seeing quite a lot of new supply,” Flaherty said.

Jellis Craig Inner North partner and auctioneer Nigel Harry said many landlords had no choice but to sell their sub-million dollar apartments and townhouses during the pandemic.

“The 13 rate hikes we had, land tax and those that we’re initially holding on to them after they traded up to their bigger family home, with the best of intentions, have had to exit the market,” Harry said.

Melbourne is very likely at a turning point in its cycle, according to Flaherty.

“We have seen home prices start to increase again in 2025 and I think in addition to the population growth, we’re seeing the fact that interest rates are now coming down is giving people more confidence, particularly a lot of people like first home buyers, who may have been nervous to enter the market,” she said.

The Reserve Bank of Australia has made two cash rate cuts this year, bringing rates down to a two-year low of 3.85 per cent.

Harry said further cash rate cuts would provide the stimulus the Melbourne market needs.

“There is so much infrastructure going on around inner city, I think that people are seeing it as a pretty safe investment,” he said.

Rental yields on Melbourne units currently sit at 5.2 per cent, above the capital city average.

“If you look at the yield on a house in greater Melbourne, it’s sitting at 3.8 per cent,” Flaherty said.

“That’s a gross yield, and that’s pretty on par with what we see in the other capitals, it’s actually a little lower than what we see in a lot of the other capitals.”

Investment opportunities in Melbourne range from a studio apartment in the CBD priced at $215,000 to $235,000 with an 11.16 per cent rental return, to a four-bedroom St Kilda home marketed at $1.9 million that has been used as a popular Airbnb residence.

Other options include a two-bedroom Southbank apartment with potential rental income of $750 per week, priced at $750,000 to $825,000, and a Victorian terrace in West Melbourne listed for $820,000 to $900,000.