Has Investor Confidence Changed in Victoria? Melbourne's Property Market Explained

For decades, Melbourne was regarded as Australia's property powerhouse.

Strong population growth, high demand and consistent capital growth made Victoria one of the country's most attractive destinations for property investors.

Today, the picture looks very different.

According to the latest Cotality figures, as reported by Tim Lawless, Head of Research at Cotality, and published in the Australian Conveyancer Magazine, Melbourne recorded the weakest annual performance of any Australian capital city. Dwelling values declined by 0.9% over the past 12 months, with Melbourne's median dwelling value sitting at approximately $806,000—below Brisbane and well below the national median of $937,722.

This raises an important question.

Is Melbourne simply experiencing a normal property market correction, or has investor behaviour fundamentally changed?

Property markets naturally move through cycles of growth, stability and correction. No market continues to rise indefinitely.

However, from where I sit as a conveyancer working with buyers and sellers every day, it feels like there has been a broader shift in investor confidence over recent years.

Not because of one single policy.

But because of the accumulation of change.

The changing investment landscape in Victoria

Victoria has seen significant changes affecting property owners over recent years, including:

• Land tax changes, increasing annual holding costs for many investment property owners.

• Expansion of the Vacant Residential Land Tax, bringing more vacant residential land within the taxation regime.

• Introduction of the Emergency Services and Volunteers Fund (ESVF), replacing the Fire Services Property Levy and increasing charges for many property owners.

• Commercial & Industrial Property Tax (CIPT), fundamentally changing how commercial and industrial property will be taxed over time.

• Federal changes to negative gearing and capital gains tax, which Tim Lawless noted have further impacted investor confidence and accelerated an already weakening market.

Each of these measures has its own policy objective.

However, collectively they appear to have changed the way many investors assess property investment in Victoria.

What we're seeing on the ground

Working in conveyancing provides a unique insight into market activity because we see buyers, sellers and investors making real decisions every day.

While every client's circumstances are different, several trends are becoming increasingly noticeable.

First home buyers are returning

Lower property prices, combined with various government assistance schemes, are creating opportunities for first home buyers who may previously have been priced out of the market.

However, affordability remains challenging.

Higher interest rates, increasing council rates and broader cost-of-living pressures mean many first home buyers are still stretching themselves financially to enter the market.

Long-term investors are reassessing

Many long-term investors appear to be reviewing whether their investment properties remain financially viable.

For some, increasing holding costs are outpacing capital growth, making long-term ownership less attractive than it once was.

In some cases, the ongoing cost of holding an investment property has simply become too difficult to justify.

Investor strategies are changing

The investors who continue to purchase property often appear to be approaching the market differently.

Rather than relying solely on long-term capital growth, many are pursuing developments, subdivisions or value-add projects where they can manufacture equity and achieve a quicker turnover.

Owning an investment property simply to "let it sit and do its thing" no longer appears to be the preferred strategy for many Victorian investors.

Has the investment equation changed?

For many years, property investment was viewed as a long-term wealth-building strategy.

Investors would purchase a property, hold it over many years and rely on capital growth to build wealth while rental income assisted with holding costs.

Today, many investors feel that equation has changed.

Rather than focusing primarily on long-term growth, increasing attention is being paid to ongoing holding costs, taxation and the overall financial viability of retaining investment properties.

Whether this represents a temporary market adjustment or a more permanent shift in investor behaviour remains to be seen.

So, where to from here?

Melbourne's current performance raises several important questions.

Is Victoria simply moving through a normal property market correction?

Will investor confidence return as market conditions improve?

Or have years of increasing taxes, holding costs and policy changes fundamentally changed the way investors view the Victorian property market?

Only time will tell.

One thing is certain: the conversations taking place across the property industry today are very different to those we were having just a few years ago.

Our perspective

At Genuine Conveyancing, we work with buyers, sellers and investors across Victoria every day.

While no two transactions are the same, seeing the market from the front line provides valuable insight into how buyer behaviour and investor confidence continue to evolve.

Whether you're purchasing your first home, selling an investment property or considering your next move, obtaining experienced legal and conveyancing advice is more important than ever in today's changing property landscape.

If you'd like to discuss your next property transaction, our experienced team is here to help.