So far, 2025 has been a remarkable year for the Melbourne property market. As many investors exited during 2023-24, a new wave of buyers is now re-entering, seeking opportunities to secure properties at competitive prices ahead of the next market cycle. With potential interest rate cuts on the horizon, the landscape could shift significantly, setting the stage for the next phase of market growth.
Potential Interest Rate Cut
The February RBA update is certainly generating a lot of discussion within real estate. Here’s our perspective on what it’s potential outcomes might mean for the industry:
If Interest Rates Hold
People will be frustrated, given the predictions that rates should drop. A number of buyers who are keen to enter the market will continue to delay their decision. The market will probably be similar to the end of 2024 – some properties selling well, others not so well, and limited stock available because vendors are only selling because they have to, not because they want to take advantage of strong market conditions.
If Interest Rates Drop
This will signal to most people that we’re passed the peak of the rate cycle, and so it’s the time to buy. Activity is already increasing significantly amongst buyers, particularly in market segments with a high level of borrowing (e.g. first home buyers and first family home buyers). Sellers will be more optimistic too, which should see more properties available for sale in the medium term and more choice for buyers.
Current Investment Activity Which State Is Getting Warm?
HTAG, a widely used subscription service exclusive to buyers’ agents and industry professionals, has released its latest data on search trends and suburb popularity across each state. The insights suggest that experienced buyers are increasingly shifting their focus toward Victoria, as represented by each bubble indicating a suburb. While interest in Perth appears to be tapering off—potentially signalling that the market is approaching its peak—Melbourne presents a unique opportunity. With property values still comparatively lower than in other states, buyers have the chance to secure undervalued assets ahead of the next market upswing.
A Fresh Perspective for Property Investors
If you’re considering investing in property, now could be an ideal time to enter the market. But before diving in, it’s important to take a step back and assess the broader investment landscape across Australia.
Currently, Queensland and Perth are among the most sought-after markets, experiencing strong growth as investors shift their attention away from Melbourne. A major factor influencing this trend is the perception of higher land tax in Victoria—a topic frequently highlighted in the media. While affordability and investor-friendly policies have made interstate markets attractive, it’s worth noting that the rapid price increases seen in Brisbane and Perth are unlikely to continue indefinitely. Every market experiences cycles, and what rises quickly can eventually level out or correct.
You may have come across reports identifying so-called “hotspot” suburbs for investment. However, by the time these areas gain widespread attention, they may already be nearing the peak of their growth cycle. Buying in at this stage could mean paying inflated prices, limiting long-term capital appreciation.
The concept of positive cash flow properties is also widely discussed. However, in today’s high-interest-rate environment, generating immediate positive cash flow is increasingly difficult—unless you’re looking at apartments or units, which often come with lower capital growth potential compared to houses with land. With inflationary pressures at play, investors are prioritizing rental yield, but as demand pushes prices higher, those yields naturally compress, prompting a need for alternative strategies.
Now, let’s take a closer look at Melbourne—a market often perceived as underperforming. While concerns around land tax are valid, it’s crucial to weigh all factors. While states like Perth and Brisbane may offer lower land tax rates, they often come with higher council rates, insurance costs, and property management fees. When net yields are compared across different markets, the differences are often less significant than they first appear. Right now, Melbourne’s property market seems to have reached its floor and is showing early signs of stabilization. This could indicate a potential upswing in property values over the next 8 to 18 months. With interest rate hikes already factored into the market, buyers currently have stronger negotiating power, creating opportunities to secure properties at favorable prices. Should interest rates ease in the future, holding onto these assets may become even more manageable, making Melbourne a market worth serious consideration for investors looking ahead.
