Melbourne’s battered property market shows evidence of a pulse but is this a genuine revival?

Weighed down by a high-taxing state government, Melbourne has been a basket case for property investors so a one-month upswing has set the industry buzzing.

The dark clouds hanging over Melbourne’s property market are showing signs of lifting. Picture: Getty Images

Is it the first sign of a rebound or a blip on the screen? Melbourne, the worst property market in Australia, just managed to outperform all other mainland capitals over the month of February.

Industry figures are calling it a stunning rebound. Well, not so fast. It’s a one-month growth figure of 0.7 per cent in a city which has offered the weakest price growth of any Australian city since the Covid-19 period.

In fact, Melbourne has the worst figures for property investment on almost any measure. The paltry 8 per cent lift since Covid-19 compares with 27 per cent in Sydney, 58 per cent in Brisbane, and more than 70 per cent in Perth and Adelaide.

Moreover, the action in Victoria so far this year is driven heavily not by investors but rather by first-home buyers – the only segment of the market where lower prices means nothing but good news.

More than one third of all homebuyer purchases in Australia over the past year were in bargain-basement Victoria.

To get a meaningful lift, the city has to attract investors who have abandoned Melbourne in droves. The Australian reported in January how investment property sales across Victoria were running about one third higher than other states.

Investors are keeping away from Victorian state government policy because better tax regimes are available, particularly in Queensland.

Victoria now has 10 separate taxes aimed at property investors and two of those taxes were introduced this year. In January the Allan state government launched its controversial vacant-residential tax (that takes in properties including holiday homes) and a short-stay levy.

For investors Melbourne has been at the back of the queue as it was seriously outpaced by Perth, and more recently, greater Brisbane along with some star performances in key Queensland regional centres.

There is also the issue that rental growth, which had been very strong across the market over 2023 and 2024, is starting to slow. Rental growth is rising at less than half the pace property owners were achieving only two years ago. National rents recorded their slowest growth in four years recently; rents increased by 4.8 per cent over 2024 which was a significant drop from the 8.1 per cent surge of 2023.

Buyer’s agent Cate Bakos.

Separately, Melbourne also has the unusual situation of having strong supply – a trend which is very useful for first-home buyers but does little to create the competitive prices that have traditionally pushed metropolitan residential prices higher. Melbourne had roughly 100,000 more homes built across the city than in Sydney over the past five years.

Also immigration intake, which has been the single biggest factor underpinning Melbourne demand over the past two years, will soften as immigration numbers are expected to drop in the year ahead.

For the Melbourne rebound to extend, investors must ultimately return to the city’s heady mix of strong economic fundamentals set against a difficult political environment.

Melbourne-based buyer’s agent Cate Bakos says: “I know we don’t see any statistics on investors moving back into Melbourne … and you won’t see them coming through for months.

“But I can tell you, anecdotally, there has been a surge of investor interest in the last few weeks, especially from states where the price rises have been much better in recent years.”

Originally published as Melbourne’s battered property market shows evidence of a pulse but is this a genuine revival?