The Melbourne hotspots set to take off and suburbs best avoided

Melbourne’s bitter winter weather can deter the hardiest of souls from venturing outdoors, except perhaps to get to the MCG for a Wallabies or AFL game.

But the city’s prospective property buyers have been out in force and defying the usual seasonal lull in auction activity.

In a week that saw auction clearance rates around the country hit a 12-month high, it was Melbourne that was the busiest of all the capital city markets.

With 1,500 homes taken to auction in the past fortnight, the Victorian capital saw a 25 per cent jump in activity compared with the weeks prior. The preliminary clearance rate also held firm at 76 per cent 67 per cent over the past two weeks. 

Before last weekend’s mild retreat, this had been the fifth time in six weeks the preliminary clearance rate for Melbourne held above 75 per cent and the 13th straight week of 70 per cent-plus early clearance rates.

Although Melbourne’s median house price rose just 1.6 per cent to almost $1,064,000 in the 12 months to June, according to the latest Domain House Price Report, seven suburbs achieved capital growth rates above 10 per cent.

Most of those were in suburbs poised to benefit from transport and infrastructure investment.

Aberfeldie led the way with 21.6 per cent increases for houses in 12 months, followed by Fairfield (18.8 per cent), Heidelberg (14.3), Box Hill (13.8), Carlton North (11.9), Brunswick West (11.4) and Canterbury (11.2).

It was similar result for unit prices, where eight suburbs clocked up annual gains exceeding 10 per cent.

Unit prices rose the most in Moorabbin, climbing 25.9 per cent to a median of $750,000. Next was Caulfield South, up 25.3 per cent to $799,000, and Fairfield, up 20.1 per cent to $587,000. Mentone (15.9 per cent), Clayton South (12.0), Albion (11.7), Preston (10.4) and Glen Waverley (10.0) rounded out the list.

Seth Winkles, Managing Partner, Investdoor, told API Magazine that while interest rates were propelling property prices higher nationally, there were factors more specific to Melbourne helping to turn the market around.

“The major factor is the population growth.

“According to the ABS, Victoria’s population increased by approximately 2.1–2.4 per cent as of March 2024, the fastest of any state or territory, and that is pushing up the demand for rentals and owner-occupier wanting to purchase.

“Growth can be attributed to returning international students, skilled migrants, and interstate movers returning after the post-Covid exodus and realising the grass may not be as green in other states.”

Another factor he said was behind Melbourne’s property resurgence is the scale of investment into infrastructure.

“Over $10 billion is being committed towards transformational projects like the Suburban Rail Loop East, the Arden medical precinct, and Melbourne Metro Stage 2, as identified in the 2024–2025 state budget,” Mr Winkles said.

“These projects are already changing Melbourne for the better, clearly increasing the desirability of middle-ring suburbs.

“For example, Box Hill achieved 82 per cent auction clearance rates in the week ending 27 July, and has realised 4.6 per cent growth in median unit prices year on year.

“This level of performance indicates strong purchasing activity but reflects long term confidence in places where improved connectivity and services are being delivered.”

Laura Scott, Principal Licensee – Melbourne, aussieproperty.com, said easing interest rates and inflation pressures have improved buyer confidence, suggesting it may be a good time to buy before property prices rise further.

“Investors, who were relatively quiet during the height of interest rate hikes, are returning to the market due to improving rental yields and long-term capital growth prospects in Melbourne,” she said.

The recovery was not evenly distributed across the city.

Ms Scott said the apartment-saturated Docklands and Southbank lacked the scarcity or lifestyle charm to drive sustained growth.

“There are issues with oversupply, high maintenance costs and low rental yields that have been persistent since the pandemic.”

She identified a couple of options likely to deliver ongoing capital growth for investors.

“Frankston is a rapidly emerging bayside growth hub with gentrification and increasing demand from priced-out buyers of inner bayside suburbs.

“There is a median house price $750,000, beachfront appeal, a hospital and education precinct, and future Suburban Rail Loop station.

“Sunshine is benefiting from major government infrastructure (Sunshine Super Hub, Airport Rail Link), gentrification, proximity to the CBD (12 km), and still relatively affordable with a median house price of $750,000.”

Mr Winkles agreed with the aforementioned assessment of Docklands, and added a few others to the list of those unlikely to warrant investor attention.

“In Donnybrook, stock was released faster than infrastructure was creating excess land, and it is undersupplied with amenities, while Rockbank also had an isolated feel due to minimal amenities.

“Truganina is oversupplied, has poor walkability, and few gentrification signs.”

More Melbourne hotspots

Mr Winkles singled out five suburbs to put on the radar.

Preston, he said, benefited from a flow-on effect from Northcote/Brunswick and had accessible public transport, with density shift following urban renewal and younger buyer demand.

Sunshine was undervalued due to industrial-to-residential rezoning.

“With the addition of the Suburban Rail Link and Airport Rail Project, this will transform the suburb into a major transport and job hub.

“Geelong West attracts spillover from Melbourne with lifestyle appeal.

“There is the V-line direct to the CBD and with Geelong has been a regional capital growth leader since 2020. 

Melton South, he said, is affordable for first home buyers, with growing infrastructure and easing transport to CBD

Box Hill was enjoying a rebound for international investors, and strong interest from migrants.

“Long term densification plans will lead the way for slower but solid long term growth being more resilient to market fluctuations.”

Land sales up, prices down

Brisbane has overtaken Melbourne to claim the nation’s second-highest median house price but Kevin Au, Research & Business Analyst, Buyers Agency, Empower Wealth, said softer markets like Melbourne are stabilising after years of stagnation due to policy pressures, while the rapid growth seen in mid-sized capitals is easing.

“Victoria’s property market is showing signs of renewed strength in mid-2025, buoyed by improving consumer sentiment, easing inflation, recent interest rate cuts, and population growth.

“While global economic uncertainty continues to cast a shadow, local housing confidence is on the rise, and we are seeing this effect particularly in Melbourne’s outer suburbs and regional hubs like Geelong.

“Investor activity is also picking up, with the ABS reporting an 8.8 per cent year-on-year increase in investor housing loan commitments in March 2025, and we expect this upward trend to continue with renewed confidence following the Reserve Bank’s rate cuts in February and May, and further cuts anticipated later this year.

“Melbourne, long considered one of Australia’s most expensive cities, now finds its median dwelling value trailing behind Brisbane, Adelaide, and Perth.

“This relative affordability is drawing increased attention to the city’s western and northern suburbs, where buyers are finding better value and more options.”

Land sales in Melbourne have taken off but prices have failed to follow the surge in demand.

New data from Oliver Hume Property Group shows buyers wading into the market and driving a 54 per cent jump in the number of sales in the three months to the end of June, compared to the March quarter.

The median lot price in Melbourne fell 2.6 per cent to $399,000 in the June quarter but rose 3.6 per cent over 12 months. Median lot prices rose only in Wyndham and Whittlesea in the June quarter, easing elsewhere.