Third rate cut of 2025 puts spotlight on Melbourne’s affordability
The Reserve Bank has just announced its third cash rate cut of the year, dropping it to 3.60%. For property investors, this isn’t just a headline, it’s a signal and now all eyes are on Melbourne.
But why is Melbourne stealing the spotlight?
Cheaper borrowing, stronger market confidence
Lower interest rates have a direct impact on the market. They increase borrowing capacity and reduce repayment pressure, giving investors more room to move. Just as importantly, they lift buyer confidence. We’re already seeing the effects: more buyers entering the market, quicker sales, and upward pressure on prices. It’s the beginning of a growth cycle, and momentum is building.
Melbourne offers value that’s hard to ignore
Melbourne has quietly become the most affordable among Australia’s major capital cities, shaping up as a strategic investment market with affordable entry price, potential for capital growth, population boom and solid rental returns. Despite growing demand, Melbourne now sits well below Sydney, with the price gap widening to $425,011, and it remains relatively cheaper than Brisbane, Canberra, Perth and even Adelaide.
Forecasts a sharp recovery in capital growth
While others might be reading the market as it is approaching its peak, the smart investors see Melbourne at the start of a new cycle. In fact, it could be at the very beginning of one. According to Domain’s projections, Melbourne’s median house price is expected to hit $1.11 million by the end of FY26.
Population growth will fuel demand
Victoria is set to reclaim its status as the population growth leader by FY27. This demographic shift will increase demand for housing, especially in Melbourne’s more affordable pockets. Notably, Victoria recorded the largest annual increase of 132,600 people, driven by the highest natural increase and strong overseas migration. More people mean more buyers entering the market, more investors seeking opportunities, and stronger demand for rental properties, all of which can drive rental yields higher.
Short supply, big opportunity
Here’s the kicker: supply is nowhere near where it needs to be. Building capacity is still far below government targets. According to Cotality, total advertised listings are down 5.8 % compared to last year, and 16.7 % below the five-year average. With fewer properties on the market and more buyers competing for them, prices are likely to rise further—and fast.
The RBA’s latest rate cut may have been aimed at boosting the broader economy, but for Victorian property market, it has done something even more specific: it’s made Melbourne irresistible again. Investors who move now can take advantage of low borrowing costs and get ahead of the new growth cycle.
Waiting could mean paying more later, both in purchase price and missed gains. For investors looking into the Melbourne property market, the current conditions are as close to ideal as the market gets.
