MELBOURNE HOUSING POISED FOR CYCLICAL RECOVERY IN 2025–26
Lower interest rates, firm population growth and tight supply set the stage for a late-2025 upturn, though Melbourne’s price discount to other capitals is likely to persist, according to new research.
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Melbourne’s residential market appears to be on a comeback path, with a pricing recovery expected to take shape from late 2025 and continue through 2026 as borrowing costs ease and demand holds up.
New research by the MaxCap Group, commercial real estate fund manager, argues that lower mortgage rates will be the key catalyst for the next upswing, with stabilising sentiment and gradually improving activity reinforcing the turn.
The city has underperformed since 2022. While Brisbane, Perth and Adelaide posted strong gains, Melbourne recorded a modest correction.
One effect has been a lift in relative affordability. Local prices now sit below a wide set of comparable markets, including Brisbane, the Gold Coast, the Sunshine Coast, Canberra and Adelaide, and could trail Perth by year end.
That discount is expected to endure even as prices rise, reflecting differences in tax settings, investor participation and recent growth momentum elsewhere.
Several cyclical and structural forces are in play. Higher interest rates and softer sentiment have been a clear headwind over the past two years.
A heavier state tax take as Victoria pursues budget repair has also weighed on investor activity. Property-related imposts such as land transfer duty and land tax are taking a larger share of state revenues in 2025–26, and that has cooled appetite at the margin.
Set against those drags are supportive fundamentals. Population growth remains robust, interstate outflows are easing, and the construction pipeline is constrained.
The research estimates an 8,000-dwelling shortfall in Victoria in 2025, with the shortage most acute in the city of Melbourne. Rental markets remain tight, with a residential vacancy rate of 1.8 per cent in August pointing to ongoing pressure on rents and a continued incentive to build.
At a sub-market level, undersupply is most evident across the inner and middle rings and through the south-east corridor. There are early signs of price stabilisation, with more than half of the most-traded suburbs shifting from annual declines to annual growth.
The initial gains are concentrated in more affordable fringe areas, where price points and borrowing capacity are best aligned as rates begin to fall.
Looking ahead, model-based projections indicate prices should lift as mortgage rates decline, incomes rise and building activity gradually recovers. The upgrade cycle is expected to be measured rather than explosive.
Without near-term reform to property taxes, the recovery is likely to be more subdued than previous Melbourne upswings, and the city’s price discount to other capitals is expected to persist through this cycle.
The research also contrasts Melbourne’s broader post-pandemic performance with other markets, noting a deeper peak-to-trough decline in CBD office values than Sydney.
Even so, the residential turnaround is framed as primarily a function of the interest rate cycle rather than policy shifts. Risks to the outlook include a slower-than-expected pace of rate cuts, construction cost pressures that delay supply, and any renewed deterioration in investor sentiment.
For buyers, the combination of improved affordability, tightening rental conditions and the prospect of lower rates suggests a narrowing window before momentum rebuilds. For sellers, the message is that late 2025 into 2026 should deliver firmer conditions, especially in well-located, appropriately priced stock across the inner and middle rings where undersupply is most pronounced.
Ophora Tallawong has launched its final release of quality apartments priced under $700,000.
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Ophora Tallawong has launched its final release of quality apartments priced under $700,000.
3 min
Ophora Tallawong has launched its final release of apartments, positioning itself as one of the last opportunities for buyers to secure a new Sydney home below $700,000.
The project, located in one of the city’s fastest-growing corridors, is offering rare buyer protections at a time when affordability is tightening and competition for quality stock is intensifying.
According to JLL’s Q2 2025 Apartment Market Overview, Sydney’s median apartment price has already climbed to $795,000, setting a record.
With interest rates now on a downward trend and supply still heavily constrained, experts warn that today’s price brackets may not exist next year.
Ronnie Rahme, Development Manager at KDMC, said buyers were responding to the combination of quality and value.
“You simply don’t see this level of finish at these price points anymore,” Rahme said. “That’s why demand has been so strong for this final release.”
Dr Andrew Wilson, Chief Economist at My Housing Market, says the economic drivers are clear. “High rents and higher prices continue to provide clear incentives for first-home buyers and investors chasing solid investment returns,” he told Kanebridge News.
“New government initiatives to support first-home buyers will also act to place upward pressure on prices.”
The bigger picture
JLL’s research reinforces that point. While over 15,700 apartments are expected to be delivered nationally this year, a 40% uplift on 2024, Sydney remains undersupplied, with demand continuing to outpace completions.
The report also notes that reductions in the RBA cash rate are expected to further fuel buyer activity, with constrained supply continuing to push prices higher into 2026.
With construction costs soaring, Government contributions climbing, and interest rates remaining high, projects are harder than ever to bring to market, putting upward pressure on newly completed apartments.
The pipeline of new supply is shrinking as developers delay or abandon projects that no longer stack up financially.
According to JLL’s overview, only 2,554 completions are forecast for Sydney this year – against annual demand exceeding 30,000 dwellings.
At the same time, population growth, rental demand, and first-home buyer incentives are intensifying competition for limited stock. The imbalance between constrained supply and resilient demand is leaving new apartments scarcer and more expensive across Sydney.
Ophora: Last Chance In Sydney’s northwest
Developed by KDMC and designed by Architex, the $50 million project has launched its final release, with limited availability of 81 brand-new residences from just $545,000 for a one-bedroom, or $695,000 for a two-bedroom, which is far below Sydney’s median and significantly cheaper than nearby competition.
The five-storey development at 37 Reis St, Tallawong, combines affordability with premium inclusions more often seen in luxury builds: ducted air-conditioning, timber floors, premium finishes, fridge cavities with water plumbing, video intercom systems, fibre internet, EV charging, landscaped gardens and a rooftop terrace with sweeping views.
It also comes with something almost unheard of at this price point, a 10-year Latent Defects Insurance (LDI) policy. Typically reserved for multimillion-dollar projects, LDI guarantees structural integrity for a decade and is only awarded to developers with a strong building track record.
SHC Insurance Brokers founder Stefan Hicks acknowledged the rarity of obtaining LDI, particularly for entry-level residential apartment complexes like Ophora.
“Gaining LDI is no mean feat. It’s offered selectively to developers and builders with a quality building history, and it requires both parties to employ an independent inspection service throughout construction,” he said.
“While this insurance is well-established around the world in about 40 countries, in Australia, we’re typically seeing high-end buildings covet LDI. The fact that Ophora has joined this exclusive list of quality-assured builds is a coup for entry-level home buyers.”
Raising the standard for affordable luxury
Rahme says the KDMC team wanted to set a new benchmark.
“Our mission with Ophora has always been clear: to raise the standard of what buyers should expect, regardless of budget,” he said.
“We’ve delivered a collection of apartments with finishes and features you’d usually only find in luxury projects, and we’ve backed it with one of the most stringent insurances available in the market. That gives buyers peace of mind that their investment is protected for the long term.
“People are walking through and realising you simply don’t see this level of quality at these price points anymore, as it’s effectively replacement cost in 2025.
“With rates coming down and limited competition, buyers and investors are moving quickly because they know the window won’t stay open. Investors, who have recently purchased at Ophora, have reported a strong rental demand, with minimum rental yields exceeding five per cent.”
Developments like Ophora, move-in ready, competitively priced and backed by rare structural protections (LDI), may represent the last chance for buyers to secure a sub-$700,000 apartment in Sydney.
View Ophora on cpmrealty.com.au
To arrange a private viewing or request more information, contact Sam Elbanna from CPM Realty: 0411 222 260
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