By Amit Aggarwal, FCPA | Property Investment Insights
General Information Only: This article provides general commentary on the Australian property market. It is not personal financial advice. Always consult a qualified professional before making investment decisions.
Melbourne property prices have shifted dramatically in the national rankings. The city has long been considered one of Australia’s most reliable property markets. For decades, the city tracked closely behind Sydney in median house prices, supported by strong population growth and a diversified economy. That trend has shifted. As of mid-2024, CoreLogic data shows that Melbourne’s median dwelling value has fallen behind both Adelaide and Perth, marking a significant change in the national property hierarchy.
For property investors and homeowners, this shift raises important questions about where value sits today and what the data actually tells us about the road ahead.
What the Numbers Show: Melbourne vs Adelaide and Perth
The changing hierarchy of housing values across Australia’s capital cities reflects both the speed of price movements and the composition of each market. According to CoreLogic research, Melbourne’s median dwelling value has dipped while other capitals have surged.
Brisbane, Adelaide, and Perth have all experienced strong price growth since the pandemic, driven by interstate migration, relative affordability, and tighter supply. Melbourne, by contrast, has been relatively quiet, weighed down by higher interest rates, increased housing supply, and a slower return of international migration compared to pre-COVID levels.
Why Melbourne Property Prices Have Underperformed
Several factors have contributed to Melbourne falling behind in the national property rankings:
- Higher housing supply: Melbourne has consistently delivered more new housing stock than other capitals, which has kept a lid on price pressure. More supply means less urgency among buyers.
- Interest rate sensitivity: Melbourne’s higher median price point (relative to Adelaide and Perth historically) means borrowers are more exposed to rate rises. Higher repayments dampen demand.
- Slower population recovery: While Melbourne’s population is growing again, the pace of recovery from the pandemic has been slower than expected, particularly in terms of international students and skilled migrants.
- Investor sentiment: Land tax increases and changes to tenancy regulations in Victoria have made some investors cautious about the Melbourne market compared to other states.
“Property markets move in cycles. Melbourne’s current softness does not mean it has lost its fundamentals. Population, infrastructure, and economic diversity still make it one of Australia’s strongest long-term property markets.”
Amit Aggarwal, FCPA
The Case for Melbourne’s Recovery
While the headlines focus on the decline, there are strong reasons to believe Melbourne’s market is not down for good. Property markets are cyclical, and several indicators suggest Melbourne could be well positioned for a rebound:
- Population fundamentals: Melbourne remains Australia’s second most populous city with over 5 million residents. Historically, house prices have followed population trends closely, and Melbourne continues to attract strong domestic and international migration.
- Relative affordability: With Adelaide and Perth catching up in price, Melbourne now offers better relative value for investors and first-home buyers. This affordability gap could drive renewed demand.
- Cost of living advantage: According to Numbeo data, Melbourne’s cost of living compares favourably to Sydney, which supports its attractiveness for workers and families relocating from other capitals.
- Peaked markets elsewhere: Brisbane, Adelaide, and Perth have experienced rapid growth. At some point, buyers in those markets may pause as affordability tightens, redirecting attention back to Melbourne.
What This Means for Property Investors
For investors with a long-term view, Melbourne’s current position in the cycle may present an opportunity rather than a warning. Lower entry prices mean better rental yields relative to purchase price, and the potential for capital growth when the cycle turns.
That said, successful property investment in any market requires careful analysis. Investors should consider factors including rental yield, vacancy rates, local infrastructure projects, and the tax implications of their investment structure. Understanding how negative gearing works in your situation can significantly affect your after-tax returns.
If you own investment property through a self-managed super fund, the considerations are different again. Our guide on investment property in SMSF walks through the key factors to consider.
“The best time to review your property investment strategy is when the market feels uncertain. That is when the right structure and tax planning can make the biggest difference to your long-term wealth.”
Amit Aggarwal, FCPA
Frequently Asked Questions
Why have Melbourne property prices fallen behind Adelaide and Perth?
Melbourne has been affected by higher housing supply, increased land tax, slower population recovery post-pandemic, and greater interest rate sensitivity due to its historically higher median price. Meanwhile, Adelaide and Perth have benefited from strong interstate migration, tight supply, and resource sector demand.
Is Melbourne still a good city for property investment?
Melbourne retains strong long-term fundamentals including population growth, economic diversity, and world-class infrastructure. Its current softness may offer better entry points for investors with a long-term horizon. However, every investment decision should be based on your personal financial situation and goals.
How do Melbourne property prices compare to Sydney?
Sydney remains the most expensive capital city market in Australia. Melbourne has traditionally been the second most expensive, but has now slipped behind Adelaide and Perth on a median dwelling basis. The gap between Melbourne and Sydney has widened, which some analysts see as a potential driver for future Melbourne growth.
What should I consider before investing in Melbourne property?
Key factors include rental yield, vacancy rates, your borrowing capacity, tax implications (including negative gearing and depreciation), the ownership structure (personal, trust, or SMSF), and local growth drivers such as infrastructure projects and population trends. A CPA can help you model the financial outcomes before you commit.
Will Melbourne property prices recover?
Property markets are cyclical. Melbourne’s strong population base, economic diversity, and relative affordability compared to Sydney suggest the conditions for recovery are in place. However, timing is uncertain and depends on factors including interest rate movements, migration policy, and housing supply. No one can predict exact timing with certainty.
Thinking about your property investment strategy?
Book a free strategy call with Amit to discuss how market conditions affect your portfolio and tax position.
