Is Inner Melbourne Still Underpriced?

Melbourne now sits further behind Sydney on price than at any point since the late 1990s, and the gap has significant implications if you're buying, selling, or refinancing in the inner south and bayside pockets we work in most; South Yarra, Albert Park, Middle Park, South Melbourne and Port Melbourne. Citywide, the market has taken years to recover from a sharper downturn than other capitals; however, the suburb-level story is more nuanced, with some of these pockets still posting solid growth while others have cooled.

Melbourne's median house value sits at approximately $970,000 to $980,000, more than $600,000 below Sydney's median, the widest gap between the two cities since around 1999, according to property analytics firm Cotality. Melbourne's overall growth over the past five years has been far more modest than Brisbane, Adelaide or Perth, largely due to a sharper 2022 downturn, above-average housing supply, negative interstate migration and an investor exodus following Victoria's 2023 land tax changes.

Within the inner south and bayside pockets, the picture is quite different. Recent real estate market data puts Albert Park's median house price at approximately $2.49 million, Middle Park at approximately $3.06 million, South Yarra at approximately $2.16 million, and Port Melbourne at approximately $1.63 million. Additionally, quarterly movements differ between these suburbs, underlining that a single citywide figure doesn't tell the full story for buyers focused on a specific pocket.

For buyers, the citywide affordability gap versus Sydney and the tightening rental market both point toward a market with underlying support, even where individual suburb figures have been soft in the short term. For owners considering a sale or refinance, understanding where your specific suburb sits relative to both its recent history and its neighbours is more useful than relying on headline numbers alone.

Why Melbourne Has Lagged Other Capitals

Melbourne's values have risen by a comparatively modest amount over the past five years, while Brisbane, Adelaide and Perth have seen prices surge by close to 80 to 90 per cent over the same period. Analysts point to several compounding factors: a deeper market downturn in 2022, several years of above-average housing completions relative to other capitals, negative interstate migration out of Victoria, and a sustained exodus of property investors.

The investor exodus has a clear trigger. Victoria's 2023 state budget introduced higher land taxes and an increased absentee owner surcharge as part of the state's Covid debt recovery measures. Rental bond data suggests Victoria lost a substantial number of rental properties in the year following those changes.

What This Means for Buyers

The upside of Melbourne's slower growth is improved affordability relative to other capitals, both for first home buyers and for owner-occupiers moving within the market. Port Melbourne's recent figures show a softer quarter, which may present opportunities for buyers willing to move while sentiment is more subdued. Middle Park, by contrast, has continued to post solid growth, reflecting sustained demand for its tightly held housing stock.

For buyers using finance to purchase in this part of Melbourne, particularly at higher price points common in these suburbs, it's worth having a clear picture of your borrowing capacity and the loan structures available before you start looking, given how quickly well-priced properties in these suburbs tend to move.

What This Means for Owners Considering a Refinance or Sale

If you already own in South Yarra, Albert Park, Middle Park, South Melbourne or Port Melbourne, take the time to understand the divergence between suburbs before you make a decision about refinancing or selling. If your suburb has posted recent growth, it may support a higher valuation for refinancing purposes than the citywide average would suggest, while a property in a slower-growing market may benefit from a longer-term view rather than a decision based on a single quarter's figures.

Melbourne's rental market adds another dimension. The city recorded the lowest annual rental growth of any capital in recent data, yet gross rental yields have held steady, suggesting the rental slowdown reflects easing demand pressure rather than a fundamental shift. For investors holding property in this part of Melbourne, this is a useful data point when weighing up whether to hold, refinance, or reassess a portfolio.

Whether you're weighing up a purchase in South Yarra, Albert Park, Middle Park, South Melbourne or Port Melbourne, or you're an existing owner wondering what current market conditions mean for a refinance or sale, the team at Key Change Finance can help you understand what your borrowing position looks like against the current market, wherever in Melbourne you're focused.

Get in touch with us to talk through your specific situation.

Frequently Asked Questions

Is Melbourne cheaper to buy in than Sydney right now?

Yes. Melbourne's median house value sits more than $600,000 below Sydney's, the widest gap between the two cities in around 25 years, according to Cotality. This reflects several years of comparatively subdued growth in Melbourne relative to other Australian capital cities.

Are South Yarra, Albert Park and Port Melbourne overpriced?

It depends on the suburb and timeframe. Recent data shows Middle Park continuing to post solid quarterly growth, while Port Melbourne has recorded a softer quarter. Suburb-level performance in this pocket of Melbourne can vary significantly, so we recommend you talk to an expert about the specific suburb and property type you are interested in rather than relying on a single citywide figure.

Why has Melbourne underperformed other Australian capital cities?

Analysts point to a sharper 2022 market downturn, several years of above-average housing supply, negative interstate migration, and an investor exodus following Victoria's 2023 land tax and absentee owner surcharge changes, which increased the ongoing cost of holding investment property in the state.

Is now a good time to buy an investment property in inner Melbourne?

This depends on your individual financial position, investment goals and risk tolerance. Melbourne's affordability relative to other capitals and its tight rental vacancy rate are supportive factors, though land tax changes have increased holding costs for investors. It's worth discussing your specific numbers with a broker and financial adviser rather than relying on general market commentary alone.

How do I know what my property in this area is currently worth?

Suburb-level median prices and recent comparable sales are a useful starting point, but they don't account for your property's specific condition, position or features. A current market appraisal from a local real estate agent, combined with an up-to-date view of your borrowing and refinancing options, will give you the clearest picture.