- Melbourne’s home prices are surging. Domain and KPMG forecast ~6%–7% growth in 2025–26, pushing the median house price toward ~$1.1 million abc.net.au australianpropertyupdate.com.au. KPMG specifically sees Melbourne’s houses up +6.6% and units +7.1% in 2026 australianpropertyupdate.com.au. Nationally, analysts (Domain, CoreLogic) expect price rises of ~4–5% per year as interest rates are cut abc.net.au kpmg.com.
- Population and migration are driving demand. Victoria topped 7 million people by 2025 id.com.au, with 75% of growth from overseas migration id.com.au. Melbourne has been Australia’s fastest-growing capital in recent years, and strong net migration (hundreds of thousands per year) is adding tens of thousands of households. At the same time, many Aussies are moving from capital cities to regional areas: Victoria’s Geelong region now ranks #1 in net internal migration upmove.com.au openagent.com.au. This demographic momentum fuels housing demand across Melbourne and nearby regions.
- Supply remains tight despite new builds. Victoria’s dwelling pipeline has struggled to keep pace. Building approvals are at record lows, and new housing completions lag far behind need propertyupdate.com.au kpmg.com. KPMG estimates only ~160,000 new dwellings will be built per year nationally (30% below targets) kpmg.com. In Victoria, planning reforms are underway, but current approvals don’t meet the projected demand of ~98,000 extra homes needed annually across Australia. The supply shortage has kept rents and prices elevated: Australian rents jumped ~7.8% in 2023, and even at lower growth now (~4–5% in 2025) rental markets remain very tight kpmg.com kpmg.com.
- Interest rates and affordability. High cash rates (4.1–4.35% in late 2024) have curbed borrowing power, especially for first-home buyers, but cuts are under way. The RBA trimmed the cash rate by 50 bp in 2025 abc.net.au and market pricing suggests ~80–85 bp of further cuts by mid-2026. This has “boosted buyer sentiment” kpmg.com, lifting forecasts. Experts warn the “toughest challenge” for buyers is imminent, but lower rates should spur demand into 2025–26 abc.net.au kpmg.com. Affordability still skews demand toward more modest homes: analysts expect units and townhouses to outpace houses as cheaper entry points australianpropertyupdate.com.au.
- Government policies to spur supply. The Victorian Government’s Housing Statement (2024–34) sets an ambitious target of 800,000 new homes over ten years vic.gov.au. Key measures include planning reforms to speed approvals and incentives for construction. Notably, stamp duty concessions were expanded: off-the-plan apartments, townhouses and units now enjoy a 100% duty cut on construction value premier.vic.gov.au vic.gov.au (saving buyers ~$25k on a median $620k apartment premier.vic.gov.au). First Home Buyers get $10k grants on new homes, and 50 new “Train & Tram Zone” precincts are funded to boost development near transport premier.vic.gov.au. A Vacant Residential Land Tax (currently 1%–3% extra duty) remains in force to discourage empty homes, and foreign buyer surcharges (stamp duty +7%–8%) also apply. Future tax reform (e.g. replacing stamp duty with land tax) is debated but not yet enacted.
- Investment outlook: opportunities and risks. With rising prices and yields, many investors are keen, but caution is advised. Opportunities: Inner and middle-ring Melbourne suburbs (especially near new infrastructure) are expected to outperform, as they offer amenity and are in short supply propertyupdate.com.au premier.vic.gov.au. Emerging areas on Melbourne’s fringe (new greenfield precincts like Clyde South) have state-backed development plans for 13,200 homes premier.vic.gov.au. In regional Victoria, demand for affordable housing is strong: Geelong and the Mornington Peninsula (high net migration) and commuter towns like Ballarat, Bendigo and Shepparton benefit from overflow demand openagent.com.au propertyology.com.au. Skilled workers and families are moving outward for lifestyle and prices. Risks: Rising interest rates (if cuts pause), oversupply of apartments, and policy changes could slow markets. Victoria’s higher land taxes (e.g. low land tax threshold of $50k) have dampened investor activity openagent.com.au, and a surge of rental listings and apartment supply earlier in 2024 suggests caution. Macro risks include global shocks (trade tensions) and any reversal of migration. Investors should focus on locations with strong local fundamentals (jobs, infrastructure) and avoid areas already oversupplied (some established apartment complexes).
- Residential vs Commercial. Residential: After a nationwide downturn in 2022–24, Victoria’s home values have started rebounding. CoreLogic notes Melbourne was among the weakest markets in 2024 (now “third-cheapest” among capitals) abc.net.au, but forecasts have improved with easing rates. Both houses and units are set to hit new highs; Domain predicts the Melbourne median house will reach $1.1 m by mid-2026 abc.net.au. Commercial: Melbourne’s office market is still recovering. CBD vacancy is very high (~18% in late-2024 cbre.com.au), but net absorption turned positive in Q1 2025 after a major tenant exit. No major new office supply is coming in the next few years (pipeline is ~66% below average) cbre.com.au, so high-grade offices may stabilize as “return-to-office” gathers steam assets.kpmg.com assets.kpmg.com. Retail in Victoria is firming: Q1 2025 saw Victorian retail sales up 1.9% cbre.com.au. Foot traffic and spending are rising (tourism and students returning), and investors are buying (e.g. Northland SC sold for $385 m) cbre.com.au. Industrial (warehouses, logistics) remains very tight: vacancy ~2.7% nationally assets.kpmg.com, though KPMG expects rent growth to moderate as new projects come online assets.kpmg.com. Overall, commercial yields have stabilized, with some compression in suburban retail yields and slight expansion in prime CBD office yields cbre.com.au.
- Regional variations within Victoria. Melbourne vs Regional: Melbourne drives the state’s market, but regional cities matter too. Melbourne’s inner and middle suburbs (e.g. those close to train/tram nodes and inner employment hubs) are forecast to lead growth propertyupdate.com.au premier.vic.gov.au. Outer suburbs and fringe areas with new development will do well where transport/infrastructure are planned premier.vic.gov.au. In contrast, some regional centres face contrasting trends: Geelong has seen surging demand (now the #1 net internal migration destination upmove.com.au) but its median price (~$726k) is still below Melbourne’s; Ballarat and Bendigo, after stellar runs, may see flatter growth (Propertyology even forecasts slight declines in Ballarat propertyology.com.au). Smaller towns like Shepparton, Mildura or Horsham experienced ~3–6% gains in 2024 openagent.com.au and look affordable, but capacity is limited by local incomes. By sector, 2025 promises “winners” in lifestyle/rural areas and growth corridors, while “laggards” include inner-city apartments (already pricey and with slower migration of investors) openagent.com.au propertyology.com.au.
Analysis & Context
Recent and Projected Price Trends
After a multi-year boom, Victoria’s housing market cooled in 2022–24 under high interest rates. CoreLogic data show Victorian home values fell ~2–3% in 2024 (regional Victoria down −2.7%, Melbourne −3.0%) openagent.com.au. Rents soared however (Vic rentals grew nearly 8% YoY) as vacancy remained ultra-low. With the RBA’s pivot, forecasts have shifted upward. Domain’s June 2025 report projects Melbourne prices up 6% in FY2025–26 to a median ~$1.1 m abc.net.au. KPMG’s June 2025 outlook similarly projects strong gains: Melbourne house prices +6.5% in 2025 and +6.6% in 2026 (units +3.6% and +7.1%) kpmg.com australianpropertyupdate.com.au. Nationally KPMG sees +4.9% for houses in 2025 (+4.5% in 2026) and +4.5% (to +5.1%) for units kpmg.com. CoreLogic’s 2024 national wrap noted Melbourne had fallen to the third-cheapest capital due to the downturn abc.net.au, but analysts now expect a swift recovery. Other forecasters (e.g. Deloitte, Oxford Economics) are also now predicting Aussie home prices up ~4–6% pa into 2026.
In the commercial sector, prices behaved differently. Melbourne CBD offices saw values decline as vacancy jumped (to ~18% by late 2024 cbre.com.au), but early 2025 brought signs of stability: no major new towers are coming (5‑year supply ~66% below trend cbre.com.au) and prime rents are inching up. KPMG notes “office values are showing signs of stabilisation in early 2025” for top-quality assets assets.kpmg.com. Retail property in Melbourne is firming; Q1 2025 turnover rose 1.9% cbre.com.au and visitor numbers are climbing as consumers return to centers. Industrial remains red-hot: historically low vacancies (~2–3%) have started to tick up as new big projects finish, but overall rent growth will “stabilize” rather than crash assets.kpmg.com.
Demand and Supply Factors
Population growth and migration: Victoria’s booming population is the primary demand driver. The state grew ~1.8% (year to Mar 2025) id.com.au, faster than much of the country, reaching 7 million residents id.com.au. Melbourne, in particular, attracted a record inflow of domestic and international migrants. Over 2023–24 net overseas migration to Australia was ~316,000 (vs 494,000 prior year) id.com.au, largely filling Melbourne’s demand. At the same time, Australian cities are exporting people: over the 2023–24 year, capital‑to‑regional moves jumped ~10.5% upmove.com.au, with Geelong (Vic) emerging as the leading destination upmove.com.au. This puts extra demand on regional housing.
Construction and land: Supply has not kept up. Victoria’s homebuilding peaked pre-COVID but has since fallen: building approvals are at historic lows propertyupdate.com.au. High costs (materials, labor), inflation and local regulations have stalled many projects. Zoning and planning changes in 2024–25 (e.g. relaxing some height rules, design codes) aim to help, but take time to implement. The new Housing Statement pledges 800,000 homes by 2034 and faster approvals vic.gov.au. Meanwhile, many urban infill projects face hurdles, so most near-term supply growth will come from greenfield suburbs (e.g. Clyde, Donnybrook). This persistent undersupply is why even with modest population growth, prices and rents are rising.
Interest rates and credit: After aggressive hikes, the RBA paused and reversed course in 2025. Lower rates improve mortgage affordability: every 25 bp cut can lift buyer purchasing power ~5%. Analysts agree that expected rate cuts (to ~3.60% by 2026) will reignite demand. However, very high previous rates have “priced some buyers out,” especially first-timers. Affordability pressures mean more buyers looking at multi-unit (lower prices) rather than house market. Mortgage serviceability rules (prudential limits on repayments) will continue to guard against overheating.
Economic growth and jobs: Victoria’s economy is set to accelerate: the 2025–26 state budget forecasts GDP growth of ~2.5% budget.vic.gov.au. Unemployment is low (~3.9% mid-2025) but is expected to edge up toward 5–6% by 2026 (RBA baseline rba.gov.au). Still, labor markets remain tight, supporting household incomes. Infrastructure spending (Big Build) and the digital economy provide jobs. A robust economy underpins housing demand, but if growth slows significantly, it could dampen price gains.
Investment Opportunities & Risks
Opportunities: Analysts highlight that metro Melbourne offers select hotspots. Core & middle suburbs: areas near transit (inner suburbs, middle ring) are in structural demand and undersupplied propertyupdate.com.au. Growth corridors: Greenfield precincts like Clyde South (Southeast) and Tarneit/Newport (West) have planned development dollars and new train lines, promising population influx premier.vic.gov.au. Regional hubs: Geelong (cheap relative to Melbourne), Bendigo, Ballarat and towns with strong job bases attract investors, especially given higher rental yields and capital gains potential openagent.com.au propertyology.com.au. Some niche markets (coastal or amenity-oriented towns like Mansfield, Bairnsdale openagent.com.au openagent.com.au) also draw buyers seeking lifestyle or tourism-led growth. Commercially, logistics/industrial property remains attractive as e-commerce grows; Melbourne industrial rents are still above pre-pandemic peaks. Retail in strong locations (neighborhood shops, well-positioned malls) should continue recovering as consumer spending increases.
Risks: The flip side includes continuing high interest rates (if inflation persists) cutting into affordability. An unexpected economic slowdown would curtail migration and demand. Over-building is a concern in some segments: for example, there is a cluster of new apartment towers in Melbourne’s CBD and inner north – if buyer demand falters, prices there could stagnate. Stricter lending standards (e.g. tighter servicing checks, negative equity fears) may make banks more cautious. On government policy, major risk is political change – a future government could reverse incentives (e.g. reintroduce stamp duty on off-the-plan deals, change land tax rules). Finally, macroeconomic factors like a global downturn or trade war could restrain property by raising unemployment or reducing capital flows.
Government Policies and Infrastructure
- Taxes and Incentives: Victoria retains progressive stamp duty on property transfers (peaking ~6–7% of price for houses). However, recent budgets have slashed duty on new apartments/townhouses (off-the-plan) – the 2024/25 concessions were doubled and extended into 2026 premier.vic.gov.au. First Home Buyers get $10,000 grants on new homes (lowers stamp duty effectively) vic.gov.au. A Vacant Residential Land Tax (1–3% of value) applies to unused homes, and a Foreign Purchaser Surcharge (+7% duty) applies to overseas buyers (aimed at cooling demand). No sweeping abolition of stamp duty has been implemented (unlike some talk of land tax), but the govt is monitoring housing affordability.
- Housing Statement & Planning Reform: The new housing statement (2024–34) identifies five focus areas: planning reform, infrastructure coordination, financial incentives, innovation and social housing vic.gov.au. The goal of 800,000 new dwellings will require major policy shifts: faster permit processes, rezoning for higher density near transport, and support for build-to-rent. Some reforms are in train (e.g. streamlining permits, cracking down on developer fees), but most are long-term. Local councils are also reviewing zones to permit more multi-unit developments in middle suburbs.
- Infrastructure Investment: Ongoing transport projects will shape suburbial demand. The Metro Tunnel (Frankston–Sunbury rail expansion) and the Suburban Rail Loop (East) are adding transit capacity in growth corridors. New roads and bypasses (e.g. Toorourrong Road) are improving access to some peri-urban areas. Melbourne Airport’s expansion and new freight links will boost Melbourne’s north-west. These infrastructure lines often become development corridors – for example, the government’s $24 m for “Train & Tram Zone” precinct plans aims to catalyze housing around 50 rail hubs premier.vic.gov.au. Careful monitoring is needed: areas slated for big infrastructure upgrades tend to attract speculative interest.
Regional and Suburban Variations
Victoria’s market is not uniform. Within Melbourne, inner-city and middle-ring suburbs (Port Phillip, Yarra, Boroondara, Monash, etc) have limited land but strong owner-occupier demand, so prices are set to climb (especially as nearby infrastructure is added). Outer suburbs face more supply and therefore slower growth, unless they have added amenities. Urban fringe areas with new planned townships (Clyde South, Toolern, Plumpton) will grow rapidly but from a low base – these markets depend on when lots are released and amenity delivered.
Regional Victoria: Before 2025, only a few regional markets outperformed. A notable analyst (Property Mavens) says major regional hubs (Geelong, Ballarat, Bendigo, Mornington Peninsula) are seeing renewed buyer interest openagent.com.au, driven by affordability and rental yields. However, OpenAgent notes that high land taxes on investors saw many sell off rental properties in 2023, which temporarily depressed values openagent.com.au. NAB’s update warns that regional growth may stay subdued in 2025 due to lingering caution and ample stock openagent.com.au. Still, tight vacancy rates (often <1.5%) give baseline support. Some smaller towns (e.g. Shepparton, Mildura, Horsham, Bairnsdale, Mansfield) have pockets of strong fundamentals (e.g. Shepparton’s agriculture economy, mildura’s housing affordability) and have shown price gains of 3–6% in 2024 openagent.com.au. For investors, suburbs like Geelong West and Spring Gully (Bendigo) are highlighted as having upside due to new developments and lifestyle appeal openagent.com.au openagent.com.au.
Expert Opinions and Forecasts
Leading property economists and firms have turned bullish on Victoria. Domain’s chief economist Nicola Powell notes “Sydney and Melbourne prices will lead the charge” in the next year abc.net.au. She warns it will be a “reality check” for first-home buyers, with growth slowing only modestly once interest rates fall abc.net.au. Domain forecasts Melbourne’s median to $1.1m by June 2026 (+6%) abc.net.au, and expects record highs for units. KPMG’s Dr Brendan Rynne likewise sees Melbourne at the top of 2026 growth charts: houses +6.6%, units +7.1% australianpropertyupdate.com.au. They attribute this to Melbourne’s rebound (after a long downturn) and solid overseas migration demand, noting Melbourne’s prices are still lower than Sydney’s australianpropertyupdate.com.au. KPMG cautions that price growth will only slow slightly in 2026 as lower rates and improving supply balance demand australianpropertyupdate.com.au australianpropertyupdate.com.au.
In contrast, some forecasters remain skeptical. Specialist firm Propertyology calls Victoria the “worst performed state” in the past half-decade and expects its markets to lag propertyology.com.au. They forecast flat or even declining prices in some regional cities (e.g. Ballarat -3% to -7% in 2025 propertyology.com.au). This view highlights risks: policy changes (land tax hikes), investor pullback, and that Victoria’s long slowdown may persist into 2025. Investors should thus weigh these views, balancing optimistic projections with caution about macro and local headwinds.
Comparative (National & Global Trends)
Australia vs Other States: Nationally, Brisbane, Adelaide and Perth have seen stronger recoveries than Melbourne recently. In fact, KPMG’s mid-2025 data show Perth’s house prices surging +10% (over six months) while Melbourne’s were only +2.8% kpmg.com (though Melbourne catches up with +6.5% in the full year). Adelaide and Brisbane also saw 5–8% gains in 2025. NSW (Sydney) is still more expensive but its growth is slowing; KPMG expects Sydney houses +4.2% in 2026 vs 6.6% for Melbourne australianpropertyupdate.com.au. Overall, experts say Victorian markets will lead the rebound after being one of the slowest earlier.
Global context: Worldwide, property markets face similar dynamics: years of rapid growth (2020–21) have given way to a plateau or correction as central banks raised rates. Many countries report supply shortages in key sectors and a pivot toward lower rates in 2025 jll.com. Real estate services like JLL and PwC note that investors will need to focus on quality assets (newer buildings, green features) and be wary of obsolescence jll.com. In cities like London, New York and others, housing prices are relatively flat as affordability bites. Australia’s experience is comparable: inflation has peaked and rate cuts are anticipated, which should support price growth (as in the U.S. where JPMorgan sees +3% in 2025 jpmorgan.com). However, unique to Australia (and Victoria) is the very high reliance on migration for housing demand; global uncertainty (trade wars, geopolitics) could thus impact our market more via migration slowdowns.
Global Outlook: On the commercial side, global CRE research (JLL) highlights supply shortages in desirable sectors (like logistics and housing) will persist into 2025 jll.com, and that investors will prefer early-cycle opportunities (the “early-mover advantage may peak” in 2025) jll.com. This aligns with Vic’s situation: sectors like industrial/logistics remain in short supply and could command premiums. Meanwhile, transitional sectors (office, retail) are stabilizing.
In summary, Victoria’s real estate market in 2025–26 is forecast for renewed growth but uneven progress. Metro Melbourne (especially inner/mid suburbs) looks set to rebound strongly, driven by population and policy tailwinds abc.net.au australianpropertyupdate.com.au. Regional markets will benefit from spillover demand, though some smaller towns may see only modest rises as supply catches up. Commercial property shows cautious improvement – offices and retail are recovering from pandemic lows, and industrial stays hot. Key influences will be RBA policy (interest rate moves), migration trends, and government reforms to boost housing supply. For investors and homebuyers alike, 2025 promises opportunities in Victoria’s “next wave” suburbs, but also risks that warrant careful due diligence and attention to expert forecasts abc.net.au openagent.com.au.
Sources: Government data (ABS), industry analytics (Domain, CoreLogic, KPMG, CBRE, NAB), and expert analyses abc.net.au assets.kpmg.com premier.vic.gov.au kpmg.com australianpropertyupdate.com.au openagent.com.au. These include Victoria-specific reports and national/global market outlooks to ensure a comprehensive view.
