When property prices are rising sharply, headlines tend to focus on the cities posting the biggest gains, which, over the last two years, have predominantly been Brisbane, Perth and Adelaide. Melbourne is not leading that conversation right now.
But for investors who are thinking carefully rather than chasing momentum, that's not necessarily a problem. Here's why Melbourne's relatively subdued market could work in your favour.
Relative affordability
One of the clearest advantages Melbourne holds over its interstate peers right now is affordability. While Brisbane, Perth and Adelaide have seen home prices more than double since 2020, Melbourne's growth has been far more measured, up just over 20% across the same period, according to the PropTrack Westpac Investor Report 2026.
That divergence has created a meaningful gap in entry prices. Melbourne's top-ranked investor suburbs for houses – including Coolaroo ($625,000 median), Meadow Heights ($670,000) and Deanside ($705,000) – offer considerably lower price points than equivalent opportunities in cities that have run hard over recent years.
But the outlook suggests the gap in entry prices may begin to close. ANZ Research has forecast Melbourne house prices to grow 2.9% in 2027 – ahead of Sydney at 2.6%, and well ahead of Adelaide, Brisbane and Perth, which are expected to slow considerably after years of exceptional gains. Among the major capitals, Melbourne is forecast to be one of the better performers in 2027.
For investors, that combination of a lower entry price today in a market that is expected to outperform creates opportunities for long-term capital growth.
Less investor competition
Investor activity in Victoria dipped between 2023 and 2024 following land tax changes, and unlike most other states, the investor share of new lending in Victoria still sits below its historical average. For buyers, this means less competition at auction, more negotiating room and potentially a better chance of securing assets at fair value.
Investor lending has also grown, with investor loans in Victoria in the December 2025 quarter accounting for 36% of total lending, according to the Australian Bureau of Statistics. This was up from its recent trough, but still well below the 41-44% shares seen in Queensland, South Australia and New South Wales, indicating the Melbourne investor market has not yet recovered to its full potential.
However, the signs of a turn are already apparent. According to PropTrack-Westpac, Melbourne suburbs made up the majority of the top 20 areas across all capital cities, with the biggest increase in investor enquiry share from 2024 to 2025.
As the graph shows, Brimbank, Tullamarine–Broadmeadows, Frankston, Sunbury and Wyndham all recorded significant jumps in investor interest over the year.
Positive gross rental yields
A common assumption is that Melbourne's lower price growth must translate to lower yields. The data shows something different.
According to the PropTrack Westpac report, Melbourne's gross rental yields for both houses and units have been relatively stable over the past two years, in contrast to Brisbane, Adelaide and Perth, where yields have actually declined as home prices surged ahead of rent growth.
When prices double but rents don't keep pace, yields compress, and that's precisely what has happened in Australia's recent high-growth cities.
At the city-wide median level, Melbourne's house yield of 3.5% matches Adelaide and compares favourably to Sydney. For units, Melbourne's median also fares well against the national picture. And critically, that yield has remained stable, underpinned by genuine rental demand rather than a temporary price-to-rent mismatch.
Profitable sales
Despite softer conditions, most Melbourne investors who sold in 2025 still made money. According to PropTrack, 84% of Melbourne investor resales in 2025 were profitable, with a median gain of $285,000 on a median hold period of 9.7 years. That's a strong long-term track record and a useful reminder that property investment in Melbourne rewards patience.
Compare that to the cities currently generating headlines. Brisbane, Perth and Adelaide have all posted exceptional gains since 2020. But investors buying into those markets today are doing so near the top of a cycle, paying a premium for growth that may already be largely priced in.
Melbourne appears to be in the earlier stages of a recovery cycle. If 84% of Melbourne investors made money after buying into a market that spent much of the last decade underperforming, it's reasonable to ask what that picture might look like for investors who buy now, at relative affordability, ahead of what many analysts expect to be a gradual recovery.
Tight rental market
Melbourne's rental market has eased from its 2022–2023 peak. Vacancy rates have risen slowly since early 2024 but are still under 2%, which is very competitive for tenants. Similarly, while Melbourne's days-on-market for rental listings has lengthened compared to cities like Brisbane and Adelaide, it remains well below the levels seen in the softer rental conditions of the 2010s.
Population growth, sustained migration and the chronic undersupply of new dwellings all point to ongoing rental demand in Melbourne through the medium term. According to PropTrack, limited rental availability is expected to continue through 2026, keeping competitive pressure on tenants and supporting rent levels for landlords.
Rate sensitivity
Melbourne and Sydney are widely acknowledged as Australia's most interest rate-sensitive housing markets. ANZ Research noted that both cities have been hit hardest by the February and March 2026 rate hikes and it forecasts small price declines for both in 2026 as a result. But the inverse is also true: when rates begin to fall, Melbourne has historically responded the earliest and most strongly of all capital cities
The chart below illustrates this clearly. Melbourne housing prices have tracked closely with changes in cash rate expectations over the past seven years. As rate hike cycles have ended and cuts have followed, Melbourne prices have consistently moved first and fastest.
Most economists are pricing in at least one more rate rise in 2026, fully reversing the 75 basis points of cuts seen in 2025. But as history has shown, once this cycle of hikes is over, the question for investors is not whether Melbourne will recover, but when. Positioning ahead of that turn, while competition remains subdued, could be a strategic move that drives long-term investment performance.
What this means for Melbourne investors
The narrative around Melbourne has been one of caution. In the short term, that caution might be warranted as prices could soften further in 2026, rates may rise further and buyer sentiment remains subdued.
But a slower market is not the same as a bad market. For investors who are well-prepared – with finance structured correctly and loans set up to maximise tax efficiency and cash flow, Melbourne's current conditions offer something the high-growth markets don't: time, affordability and comparable yields without the premium price tag.
If you're considering an investment property in Melbourne, speak to the team at AXTON Finance. We help Melbourne professionals structure their lending correctly from the start, so they're ready to act when the right opportunity comes up. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch today.
