Challenges keeping demand subdued

• Melbourne’s property market has experienced a greater slowdown compared to other major Australian cities as interest rates have risen. Despite this trend, apartment pre-sales are currently being supported by temporary state tax incentives on off-the-plan purchases.
• While apartment pre-sales from investors remain subdued, solid demand remains for premium and boutique developments, particularly among owner-occupiers and those looking to downsize.

New supply is low

• Inner Melbourne saw 4,246 new units complete in 2024, the majority of which were BTR projects. Supply has been lower since 2022, but this compares to over 7,000 apartments p.a. completed from 2016 to 2021. Supply is likely to fall further in 2025 and 2026.
• Melbourne rental vacancy rose to 2.2% in December 2024. This partly reflects late-year seasonal factors, but also the completion of several large BTR projects late in the year. Nevertheless, vacancy is still moderate and below its 10-year average of 3.0%.

Price growth stalls

• Melbourne existing unit prices have fallen in recent months and are down over the past year, reflecting the general slowing in housing market activity. Nevertheless, the pace of decline is already slowing, and the worst of the downturn may already be over.
• Melbourne median 2-bed rents have stabilised over the three months but are still 5.8% higher over the past year and 37.5% higher over the past three years.

Outlook: Recovery draws closer

• Melbourne’s apartment market has been much softer than most other markets, but interest rate cuts and off-the-plan tax incentives might be enough to boost confidence and see a recovery build as 2025 progresses.
• Over the medium-term, strong population growth will keep underlying demand growth strong and a limited apartment supply pipeline will struggle to meet this demand. As such, fundamentals still support a return to solid price and rental growth over the next few years.