For the past three years, Melbourne's property investors have been walking away from the market in record numbers. Rising land taxes, stricter tenancy laws and the threat of federal reforms have pushed many to sell up and move on.
But recent data suggests the tide may finally be turning. For the savvy investor, Melbourne is back on the radar.
What caused the exodus?
In recent years, many investors paused or pulled back from investing in Melbourne and Victoria more broadly. According to the Property Investment Professionals of Australia (PIPA), 22.1% of investors reported selling at least one property in Melbourne over the last year. This was the highest of all capitals, with Brisbane second at 19.7%.
There were several reasons for this decline:
1. Land tax changes
The Victorian government made some changes to property and land taxes that pushed investors away.
As of 1 January 2024, the tax-free land tax threshold for trusts was drastically reduced from $300,000 to just $50,000, bringing many properties previously exempt under the land tax net for the first time.
Marginal tax rates for investors were raised, making the cost of holding multiple properties or high-value land significantly more expensive.
The Vacant Residential Land Tax was expanded statewide, applying to any residential property vacant for more than six months in a calendar year, including holiday homes and second dwellings.
Together, these changes increased holding costs for investors, who were already facing higher interest repayments. In many cases, the tax bill on a typical investment property in Melbourne’s middle-ring suburbs climbed by several thousand dollars per year. For some, that erased much of their net yield and prompted a sell-down.
2. Rental reforms
Over the past few years, Victoria has led the nation in tenancy reform. More than 130 changes to rental laws have been introduced since 2021, covering everything from minimum standards and energy efficiency to limits on rental increases and new eviction processes.
While the reforms aimed to improve tenant conditions, the volume of changes created uncertainty and extra compliance for landlords. Investors had to budget for safety checks, appliance upgrades and new record-keeping obligations – all of which added time and cost.
3. Slow capital growth
For much of the past three years, Melbourne’s property market has lagged behind faster-moving cities like Brisbane, Perth and Adelaide.
After the 2022 downturn, Melbourne prices were slow to recover. According to PropTrack, it took more than 1,000 days for the city to reclaim a median house price above $1 million, finally crossing the line in October 2025 – one of the longest recovery periods of any capital city.
For investors chasing returns, that underperformance dulled enthusiasm. Other markets delivered better short-term capital gains and comparable rental yields.
Investors are returning
So why do we think Melbourne's investor exodus might be over? Because the data shows that investors are returning – despite the headwinds.
Melbourne was named the top investment destination by 41% of respondents in the PIPA survey – up sharply from 26.3% the year before. That's a dramatic shift in sentiment and puts Melbourne far ahead of other capitals.
Recent purchase behaviour backs this up. The latest lending indicators from the Australian Bureau of Statistics (ABS) showed that there were 5.2% more home loans secured by investors in the June 2025 quarter compared to the same time the previous year. As the graph below shows, the longer-term trend shows a steady increase for Victoria, with a 23.3% rise since June 2023.
Why Melbourne is back on the radar?
Melbourne's median house price has now posted eight consecutive months of growth. That's up more than $67,000 from when prices bottomed out in December 2022, with $50,700 of that gain occurring in the past 12 months alone, according to PropTrack.
Units have also recovered from their 2022 slump, up about $23,500 (3.9%) from where they bottomed out and now worth a median $625,000.
This is good news for investors seeking capital growth. But it’s not just the recovery that’s attracting attention – it’s Melbourne’s relative affordability. Despite recent price gains, Melbourne remains the third-cheapest capital for houses (after Sydney and Brisbane) and fifth-cheapest for units (behind Sydney, Brisbane, Adelaide and Perth).
Lower prices mean lower barriers to entry, stronger rental demand from priced-out homebuyers and greater potential for future value growth as the market continues to catch up.
The rental market remains strong, attracting investors looking for consistent rental income. As the graph below shows, Melbourne is now achieving gross rental yields of 4.5% for units and 3.1% for houses, according to SQM Research. This is higher than the capital city averages of 4.4% for units and 3.0% for houses.
Vacancy rates remain extraordinarily tight at 1.8% according to SQM Research, well below the 2-3% that is considered a balanced rental market. Rental demand is strong and shows no signs of weakening, underpinned by Melbourne's strong population growth. The city is on track to overtake Sydney as Australia's most populous city, which will continue driving housing demand.
What this means for you
If you’re considering adding an investment property to your portfolio, Melbourne’s current market offers both opportunity and risk.
The opportunity lies in entering a major capital city at a relatively affordable price, with strong rental returns and long-term growth drivers.
Melbourne’s demographic outlook is compelling. The ABS projects Victoria’s population will grow by 0.7% to 1.5% per year to 2071 – faster than the national average.
At the same time, housing supply remains constrained. While completions are rising, they remain well below state targets. This means affordability may not last, as demand continues to outpace new housing.
For investors, that presents a window of opportunity – to secure a property before prices rise further and position for the next phase of growth.
But Victoria’s tax and regulatory settings still demand careful attention. Holding costs are higher than in some other states, and compliance requirements more complex. That’s why it’s important to model your numbers carefully.
To make this easier, AXTON Finance clients can use our Next Purchase property planning software – a powerful modelling tool that calculates cash flow, loan-to-value ratios and total funds required before you commit to a purchase. It lets you test different scenarios and see the full financial picture in real time, so you can invest with confidence and plan your next move strategically.
Working with an experienced Melbourne mortgage broker like AXTON Finance can help you make sense of local tax rules, compare finance options tailored to Victorian investors and structure your loan to support both cash flow and long-term returns.
Ready to take the next step in your investment journey? Axton Finance helps Melbourne investors secure smart loan structures and competitive rates to support long-term growth. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch today.