In 2025, Melbourne’s residential property market has a great deal of potential for investors, but if you’re considering residential property investment, it’s important to have a comprehensive understanding of the opportunities and challenges presented by today’s landscape.
This article analyses market trends, rental yields, interest rates and infrastructure developments, to help you make a more informed decision.
The current state of the Melbourne residential property market
Melbourne’s residential property market is stabilising and moderate growth is forecast in 2025. After a downturn, CoreLogic data indicates that housing values enjoyed a rebound in February, March and April, marking a turning point driven by renewed buyer interest and easing inflation. The Reserve Bank of Australia’s recent decision to lower the cash rate to 4.10%, is tipped to lead to improved conditions and higher investor confidence.
Suburbs linked to major infrastructure upgrades like the Metro Tunnel and the Suburban Rail Loop are experiencing above-average appreciation in property values. These projects are increasing accessibility and liveability, which lures buyers and renters.
Rental market trends and investment appeal
Melbourne’s rental market continues to tighten in 2025, with low vacancy rates and upward pressure on rental prices. In 2025, house and unit rents reached parity in metropolitan areas. This is a rare occurrence that highlights the strength of demand across the board. If you’re an investor, this equates to higher rental yields, especially in inner-city suburbs and growth corridors. Why are apartments as expensive as houses? Affordability pressures are driving more tenants to well-located apartments and townhouses, which offer a balance of convenience and cost-efficiency. These properties are becoming increasingly popular among young professionals, students and people who are downsizing, and this is what is driving prices up. The short-term rental market is also gaining traction. Properties listed on Airbnb, for example, are experiencing more bookings. This is particularly the case if the short-term rental is in a coastal area like Port Melbourne or St Kilda, or near the CBD. If you’re an investor, it’s worth analysing the returns you can expect from short-term leasing vs a long-term rental arrangement.Impact of interest rates and lending conditions
With the RBA’s cash rate cut to 4.10% in April 2025, the lending environment is beginning to lean in favour of borrowers, and many commercial and residential lenders have now begun lowering their rates. However, lenders are maintaining strict assessment criteria, including:- Loan-to-value ratio (LVR) limits
- Thorough evaluations of borrower income
- Assets and liabilities
Long-term prospects for Melbourne property investment
Despite recent fluctuations in the market, Melbourne continues to rank as one of Australia’s premier cities for long-term residential property investment. Some key drivers include:- A resilient economy
- Population growth spurred on by migration
- Extensive public infrastructure development
Potential risks to consider
While the property market in Melbourne offers strong long-term prospects, you should remain aware of potential risk factors. For instance, policy shifts such as changes to tenancy laws, land tax, or negative gearing rules can all affect investment returns and landlord obligations. The market is also still sensitive to broader economic indicators like employment rates, inflation and global financial conditions. These can impact buyer confidence and borrowing capacity. Careful property selection and due diligence are crucial. Consider the location, property condition, local vacancy rates, and future development plans, as these can all influence your investment property’s performance. You should also maintain financial buffers as much as possible, so you can weather short-term market volatility and manage unexpected changes in the investment landscape. With this being said, it is expected that decreasing interest rates will see a flurry of activity on the Melbourne market towards the end of 2025 that will push home values higher. If you’re thinking of investing, this is why now is a good time to get a ‘foot on the ladder’.Ready to invest in Melbourne? Get expert advice today
If you’re ready to invest in Melbourne’s property market, Lend & Co will guide you through every step of the process. Contact us today for a free strategy call.
