MELBOURNE HOUSING POISED FOR CYCLICAL RECOVERY IN 2025

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.

In Sydney’s Northern Beaches, there are plenty of homes with a multimillion-dollar view and an enviable position close to the sand.

This unique listing has all that, but it has also earned its page in the local history books.

After 50 years in the same hands, The Palladium in Palm Beach—once a famed dance hall, then a restaurant, a private residence, and an artists’ studio—is now back on the market with a price hopes of $13.5 million through BJ Edwards and David Edwards of LJ Hooker Palm Beach.

Positioned in a rare corner spot where Ocean Rd meets Palm Beach Rd, The Palladium has been front and centre observing the famous sandy stretch for almost a century.

Built in the early 1930s, the Art Deco building was originally conceived as a vibrant community dance hall; the “it” place to be for young folk during Sydney’s thriving interwar period.

Often the dances were held to raise money for the Palm Beach Surf Life Saving Club, and newspaper reports of the time told of rowdy parties lasting until the early hours, bootleg liquor arrests, and where shorts and sandals—or even pyjamas—were scandalously worn by “both sexes”.

Over the decades, The Palladium has worn many hats.

By 1943, the original owner, Joseph Henry Graham, had defaulted on his loan, and a mortgagee sale reportedly sold the building for £1550, which translates to about $137,000 today. It later became a dining space and a general store run by the Milton family. In the 1960s and early 1970s, the property was also home to the Blue Pacific Restaurant.

The current owners acquired the keys in 1976 when it began its next chapter as a creative hub. One of today’s vendors, filmmaker David Elfick, who has been a filmmaker and producer on such films as Newsfront and Rabbit-Proof Fence, has told stories of a free-spirited creative hub that has been used for film sets, to store numerous movie props, as editing rooms, to hold countless parties and has even hosted visiting members of the Royal Shakespeare Company.

From its famed beachside soirees to its grassroots film club nights, the venue has become woven into the cultural fabric of Palm Beach.

Today, that rich history has been reimagined into a coastal home that honours its past while embracing contemporary beachside living.

Built in a unique architectural style known as streamline moderne, the aeroplane hangar-like building reflects the era’s fascination with air travel, mass transport, and modernity. The facade is defined by a sweeping curved roofline and subtle nautical cues.

The main residence features a vast central living space framed by a number of bedrooms and sunrooms, as well as a front dining room and kitchen. In total, there are four to five bedrooms, three bathrooms and a powder room adjoining an upstairs loft space.

Big, broad windows draw in loads of natural light and provide iconic views, plus the sounds of the beach just across the road.

Many of the original elements remain, most fittingly the polished floors of the former dance hall. In the additional building at the back of the block, there is a separate, self-contained studio with its own bedroom, bathroom, kitchen and laundry. From its elevated deck, the outlook stretches across the full sweep of Palm Beach.

Outside, the expansive 1151sq m land parcel also features established gardens with veggie patches and standalone decks for quiet contemplation.

Sitting just across the road from the beach, the property is also within walking distance of local cafes and the surf club. Palm Beach Rock Pool is at one end of the beach, with the Palm Beach Golf Club and the water airport at the other end of the peninsula.

The Palladium and Palm Beach Studio at 16 Ocean Rd, Palm Beach are listed with BJ Edwards and David Edwards of LJ Hooker Palm Beach via a private treaty campaign with a price guide of $13.5 million.

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.

After half a century in the same hands, The Palladium blends Art Deco heritage, cinematic history and beachfront living in one extraordinary offering.