Melbourne's property market has spent the past few years trailing Brisbane, Perth, Adelaide and Sydney. For investors, that underperformance has created something rare: an opportunity to buy into Australia’s second-largest city at a relatively affordable price before values begin rising again.
For those considering their first investment property, 2026 is shaping up as a year worth paying attention to. KPMG forecasts a lift in momentum, with Melbourne house prices expected to rise 6.8% and unit prices 7.3%, signalling a shift from the subdued conditions that have defined recent years.
Importantly, this change is being driven by longer-term fundamentals rather than short-term speculation. Melbourne remains more affordable than Sydney and Brisbane, and population growth is set to do much of the heavy lifting. The Centre for Population forecasts annual growth of 1.4% over the next decade, representing the largest numeric increase of any Australian city.
Meanwhile, the Melbourne rental market remains tight. Domain data shows vacancy rates ended 2025 at 1.6%, well below the 2-3% threshold that signals a balanced rental market.
Why choose Melbourne now?
The case for investing in Melbourne in 2026 rests on three things: relative affordability, returning investor confidence and a strong economy.
Relative affordability
Melbourne's median house price was $1,111,084 at the end of 2025, compared with Sydney's $1,759,909 and Brisbane’s $1,171,237. That gap has widened as Melbourne price growth lagged. The difference in unit prices is even starker, with Melbourne’s median of $601,184 trailing Sydney, Brisbane, Adelaide, Canberra and Perth.
Lower entry prices can mean a smaller deposit, lower repayments and the ability to buy in better-located suburbs than the same budget allows elsewhere. It also positions investors to benefit when Melbourne begins to narrow the price gap over time.
Investor confidence
Following a period of decline, investors are finally returning. According to the ABS (Australian Bureau of Statistics), in the September 2025 quarter, new home loan commitments by investors in Victoria rose 27.2% year-on-year, the strongest growth in the country.
Rising activity signals improving sentiment about price growth and rental demand. When investors re-enter, competition gradually lifts, which can support prices over time.
Strong economy
Melbourne’s investment case also rests on the depth of its economy. Victoria added more than 300,000 jobs between 2022 and 2025 - faster growth than the rest of Australia - with unemployment at 4.6% and participation near record highs at 67.7%. Strong employment supports reliable tenants and rental demand.
Infrastructure is another key driver. The Metro Tunnel, West Gate Tunnel, North East Link, Suburban Rail Loop and Melbourne Airport Rail Link are all progressing, reshaping property values along new corridors.
Selecting the right suburb
Choosing the right suburb for your next investment will depend on your goals. Some investors prioritise rental yield – the income a property generates relative to its value. Higher yields help offset repayments and holding costs. Others focus on capital appreciation, opting for suburbs with limited supply and strong owner-occupier demand.
Many experienced investors aim for a balance of both. A property with reasonable yield and solid growth drivers can reduce cash flow pressure while still building equity.
It also helps to look at practical signals. Low vacancy rates, steady rental increases and days on market can all point to healthy demand. Local knowledge matters too. Factors like school zones, transport links and neighbourhood reputation often influence tenant and buyer interest.
The right suburb is the one that fits your borrowing capacity, risk tolerance and long-term plan.
Selecting the right property
Another important factor for a successful investment in Melbourne is the type of property. This affects rental demand, ongoing costs and long-term growth.
Houses vs units
Houses typically offer more land content, which is one reason they have historically delivered stronger capital growth over long periods.
Over 10 years to 2025, Melbourne house values rose 51.5%, compared with 20.0% for units, according to the Australian Property Institute. As the graph below shows, this trend has continued for much of the last three decades.
Units and townhouses often come with a lower purchase price, which can improve rental yield and reduce the size of the loan required. Recent data from SQM Research shows Melbourne’s median gross rental yield at around 3.0% for houses and 4.5% for units.
It is also worth factoring in ongoing costs. Strata fees can affect net returns on some apartments and townhouses. On the other hand, maintenance costs tend to be higher for houses.
New vs established
New properties appeal to some investors because they are low-maintenance and may offer depreciation benefits at tax time. They can also attract tenants who prefer modern layouts and energy-efficient features.
Established properties come with a performance history. You can review past sales, local growth rates and time on market. Many established homes are also on larger blocks, which can support stronger land value growth.
Your choice should suit your strategy. If lower maintenance and tax efficiency matter, a new property may suit. If long-term capital growth and land value are priorities, an established home may align better.
How to finance an investment property
How you structure your finance can have a big impact on cash flow, flexibility and long-term returns.
Many investors use equity from their existing home to help fund a purchase, which can reduce the deposit required. Cross-collateralisation – using multiple properties as security for a loan – is an option, but it can limit flexibility and increase risk if markets move unexpectedly.
Tax considerations also play a role. Negative gearing may allow you to offset rental losses against other income, reducing tax early on. Depreciation on the building and fixtures can provide additional deductions. But, this information is general in nature and may not apply to your specific situation – it’s important to speak with a qualified accountant or financial advisor before making decisions.
A tailored approach, considering both your borrowing capacity and tax position, is key to making finance work for your strategy rather than against it.
Using our exclusive Next Purchase software, a mortgage broker at AXTON Finance can model scenarios based on your circumstances and help you understand what's realistic without overcommitting.
Next steps
No property market moves in straight lines, but conditions in Melbourne are as favourable as they have been in years. Affordability has improved relative to other capitals and investor sentiment is positive.
Investing in 2026 is about making informed decisions. A structured conversation about your goals, borrowing power and loan options provides clarity before committing time or capital.
Ready to explore investment opportunities in Melbourne? Start with a conversation that puts your goals first. Speak to Axton Finance today to see how the right strategy and finance can work for you. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or contact us today.