(May 2025 Blog) Melbourne’s market turns a corner

Melbourne’s property market is showing clear signs of recovery, reigniting investor interest after a long period of subdued growth. 

According to Domain’s latest figures, the city’s median house price climbed to $1.03 million in the March quarter – up $16,000 in just six months. While prices remain slightly below their 2022 peak, improving affordability compared to Sydney and other capitals is helping to bring buyers back to the table.

As the table below shows, premium suburbs are leading the rebound, with areas like the inner east recording a 6.7% jump in house prices over the quarter. 

With interest rate cuts boosting borrowing capacity and buyer sentiment, momentum is building. Importantly for investors, Melbourne’s long-term fundamentals – population growth, infrastructure investment and economic diversity – remain strong. Many are now seeing the current window as a rare counter-cyclical buying opportunity before competition intensifies further.

And it’s not just first-home buyers taking notice. Investor activity is heating up too.

Melbourne dominates investor hotspots

This heightened investor interest is clearly reflected in Melbourne's suburbs, several of which prominently feature among Australia’s top investment hotspots in the recent MCG Investor Index.

The Index found significant investor activity in the city's western and southeastern suburbs, driven by affordability, rental demand and promising growth prospects. This surge highlights investors’ confidence in Melbourne’s balance of affordability, rental demand and future capital growth. Houses are heavily favoured, with 78% of newly leased investment properties being detached properties, reflecting a clear preference for land-rich assets that can offer better long-term appreciation potential.

Family-friendly suburbs with strong infrastructure, good schools and easy city access are especially popular among investors looking to maximise both yield and growth. 

As Melbourne’s recovery gathers pace, strategic property selection has never been more important for securing strong returns. However, rental market dynamics are also shifting, and investors need to stay ahead of the curve.

Rental growth eases but vacancy remains tight

While Melbourne’s rental market remains extremely tight, growth has started to moderate. 

CoreLogic’s latest Quarterly Rental Review shows Melbourne vacancy rates are at 1.4%, compared to 1.0% 12 months ago, but Melbourne’s rental listings are tracking 22.1% below historic averages.

These low stock levels continue to support rental demand, particularly for well-located family homes and quality units, with rents in the city rising 0.8% over the March quarter.

However, worsening affordability is prompting many renters to form larger households or delay moving out on their own, slightly tempering rental price pressures. Investors who focus on properties that appeal to stable, long-term tenants – such as families and professionals – are best placed to benefit from steady returns, even as growth slows.

Given these evolving dynamics, some investors are wondering whether regional markets might offer better opportunities ahead.

City strength vs regional growth: making the right move

As an investor, one of the big questions you have to consider is whether to buy in the city or the regions. Your answer may depend on how long you plan to hold the property. 

Over the long term, capital city investments have consistently outperformed. Take Melbourne, for example – its median house price has surged 164.7% over the past 20 years, according to research from the Property Investment Professionals of Australia (PIPA).

That said, many regional markets have posted impressive short-term gains since the pandemic. Lifestyle appeal and relative affordability have fuelled demand in places like the Mornington Peninsula and Victoria’s Surf Coast. Even inland hubs such as Murray Bridge and Kingaroy have seen significant price growth.

Migration trends are shifting too. While Australians continue to move to regional areas, growth is becoming more dispersed, with smaller hubs beyond traditional commuter belts gaining traction.

That’s why it’s essential for investors to align their strategy with their timeline and goals. In Melbourne, rising prices, strong investor demand and a tight rental market present compelling opportunities for those ready to act. At the same time, carefully chosen regional investments in areas benefiting from population growth and lifestyle appeal can add valuable diversity to a portfolio.

The key is knowing where to look. Whether you're eyeing Melbourne or the regions, expert guidance can make all the difference. A buyer’s agent can help you identify high-performing opportunities, make sense of changing market conditions and negotiate effectively – setting you up for long-term success.

Melbourne’s property market is full of opportunity, but securing the right property takes expertise. As an expert buyers agency, A Game Property Advisory can help you secure a quality property at a great price. Get in touch with Jim by calling 0422 446 170 or emailing jim@agameadvisory.com.au.