Melbourne's apartment market may be Australia's most undervalued property sector
After years of lagging other capital cities, Melbourne’s apartment market appears to be trading at a significant discount, with shifting supply and demand dynamics creating opportunities for both investors and first home buyers.
Melbourne’s apartment market is presenting a rare investment opportunity. After several years of underperformance relative to other major capital cities, the market now appears fundamentally undervalued.
With supply and demand dynamics shifting in favour of price growth and policy settings enhancing accessibility, the timing for both investors and first home buyers to enter the Melbourne apartment market may be optimal.
Sydney’s apartment market has historically commanded Australia’s highest median apartment price, with Melbourne comfortably holding second place.
JLL Research shows that over the 20-year period to May 2026, Sydney’s median apartment price increased 116 per cent while Melbourne’s median saw 113 per cent total growth, representing annual growth rates of approximately 3.9 per cent and 3.8 per cent respectively.
These comparable long-term growth rates reflect the cities’ fundamental similarities as both are major capitals with similar populations, mature and diverse economies, and broadly comparable market dynamics.
Recent performance, however, has diverged, creating a pricing anomaly that suggests Melbourne is now trading below its intrinsic value.
In May 2006, Melbourne’s median apartment price sat $100,000 below Sydney’s. By May 2026, that discount had widened to approximately $225,000.
More significantly, Melbourne has been overtaken by other capitals.
Brisbane has closed its gap with Sydney almost entirely, from $115,000 below to just $15,000 difference over the same period. Perth now sits only $150,000 below Sydney, placing both cities ahead of Melbourne.
Today, Melbourne’s median apartment price sits below not just Sydney, but also Brisbane, Perth and Adelaide. For Australia’s second-largest city, soon to become the largest, this represents a clear market dislocation and compelling entry point.
Melbourne’s recent underperformance stems from identifiable, temporary factors rather than structural weakness.
Over the five-year period to December 2025, median apartment prices increased just 1.2 per cent per annum compared to Sydney’s 2.4 per cent, Brisbane’s 10.7 per cent, and Perth’s 8.1 per cent. Population growth in Victoria ran below the rate of new dwelling delivery, while in Queensland and Western Australia, population grew significantly faster than new supply, driving steep price appreciation.
This supply overhang explains Melbourne’s underperformance, but critically, this condition is now reversing.
Two converging trends support the case for price appreciation ahead.
First, Melbourne’s population is growing, with the city projected to overtake Sydney as Australia’s largest within the next decade, driven by both interstate and international migration.
Second, new dwelling supply is contracting as development feasibility challenges have slowed project commencements, translating to significantly fewer completions over the coming years.
This fundamental shift, increasing population alongside declining supply, creates the similar conditions that have been driving recent price growth in Brisbane and Perth.
Lower supply, higher rents
The evidence suggests Melbourne is transitioning from oversupply to undersupply, positioning the market for a correction toward pricing levels more consistent with its scale and economic fundamentals.
Beyond capital appreciation potential, Melbourne offers superior current returns.
While prices have remained flat, rents have continued advancing, creating an attractive yield environment.
Median one-bedroom apartment rents are $480 per week in Melbourne compared to $670 per week in Sydney, delivering a gross yield of 6.3 per cent versus Sydney’s 5.0 per cent.
For investors, this combination is compelling to acquire assets at prices below comparable markets while generating superior income, positioned ahead of an expected price correction.
Quality apartments in well-located inner-city precincts offer the potential to capture both strong ongoing yields and significant capital appreciation as supply and demand fundamentals normalise.
First home buyer opportunity
For first home buyers, Melbourne’s current pricing and policy environment creates enhanced accessibility.
The market’s undervaluation means that quality inner-city apartments in Australia’s soon to be largest city are more affordable than they have been in years relative to other capitals.
This affordability is further enhanced by favourable government support programs.
The Australian Government Help to Buy Scheme enables eligible first home buyers to purchase with as little as a 5 per cent deposit without requiring lenders mortgage insurance, significantly lowering the barrier to entry. The Victorian Government First Home Owner Grant can help some buyers, while stamp duty concessions have also been extended through October 2026, providing material savings on purchase costs for eligible buyers.
Melbourne’s apartment market presents a compelling opportunity grounded in the data.
The city is trading at a historic discount to peer capitals despite comparable long-term growth drivers.
Supply and demand dynamics are shifting from oversupply to undersupply, and current yields are superior to comparable markets.
For investors seeking quality assets positioned for capital appreciation alongside strong income, Melbourne’s inner-city apartment market warrants serious consideration.
For first home buyers, the combination of relative affordability, government support, and timing ahead of expected price correction creates an advantageous entry point.
With Melbourne poised to become Australia’s largest city, current pricing levels may represent a rare opportunity to acquire assets before the market revalues to levels more consistent with the city’s scale and economic position.
