Is 2026 A Good Time To Buy Real Estate In Melbourne?

Will interest rates, inflation and new taxes crash property prices in 2026? 

When the Reserve Bank raises interest rates, it usually leads to a decrease in property values.

Higher rates often mean that people borrow less to buy property, which reduces the overall pool of funds available for any given property.

On top of this, state governments have increased land taxes and imposed stricter regulations on rental providers. Meanwhile, inflation has driven up the cost of almost everything.

So, why haven’t we seen a significant drop in the property market?

Let’s explore the factors that are currently putting pressure on the property market and how these elements might influence investing in 2026.

A problem with supply. 

The constrained supply aspect often plays a significant role in property market dynamics. If there’s a shortage of available housing, it can put upward pressure on prices as demand outstrips supply.

The decision by the Albanese Government to welcome 650,000 new migrants by mid-2024 signifies a substantial shift in Australia’s ability to supply new housing. 

The warning from Infrastructure Victoria about the need to build 44,000 new homes annually in Melbourne underscores the pressing challenges posed by population growth. Accommodating an additional 3.1 million people by 2051 is a substantial task that requires careful planning and execution, particularly in the realm of housing.

However, the concern raised by SQM Research managing director Louis Christopher regarding the impact on the housing market is notable. With Melbourne already grappling with ultra-low rental vacancy rates, a surge in immigration could further put upward pressure on property prices. 

Patience for better interest rates?

If you’re watching mortgage rates, holding off could still be a smart strategy. Rates are a major factor in the overall cost of owning a home, so waiting for a more favourable rate could save you significant money over time.

Rates climbed steadily throughout 2022 and 2023, with many expecting them to ease alongside inflation by late 2024. While inflation has since eased, it hasn’t yet reached the Reserve Bank’s 2.5% target, which is why interest rates remained relatively high through 2025.

Looking into 2026, economists and the big four banks are forecasting a gradual reduction in interest rates. This could create a more favourable environment for buyers, making it an opportune time for those prepared to enter the market and secure a mortgage at lower rates. Patience now may pay off next year, both in affordability and long-term investment potential.

The elephant in the room, declining inflation. 

How Melbourne’s New Land Tax Rates Are Shaping Investment Strategies

 In 2024, many suburbs across Melbourne have seen little to no capital growth, with some areas experiencing a decline of around 5%.

As a result, many Melbourne investors are selling their properties, and auction clearance rates are falling. What has caused such a shift in what was once considered the world’s most liveable city?

The 2020s have been challenging for Victorian property investors. They endured some of the world’s longest lockdowns, faced rising inflation, and have seen 13 consecutive interest rate hikes. Additionally, new legislation now mandates minimum standards and regular safety checks for rental properties.

The situation was further exacerbated when the Andrews Government introduced a temporary land tax surcharge in 2024, intended to address COVID-19 debt. This surcharge, added to the existing land tax, will be in effect for 10 years.

For example, if your property is valued at $1.6 million with the land component worth approximately $1.2 million, your land tax bill would now be around $15,450 per year. Over 10 years, if property values increase, you could end up paying more than $154,000 in land tax alone.

Investors with inner-city properties where the land value exceeds $3 million are now facing annual land tax bills exceeding $30,000.

New land tax rates.

Owning multiple properties under this new tax regime can be particularly burdensome, especially in an environment of high interest rates and inflation. This is why many Melbourne investors are choosing to exit the market.

Given these factors, it’s clear that the Melbourne property market is undergoing a significant rebalancing of wealth.

Buy now or wait?

The Melbourne property market faced challenges throughout 2024, with high holding costs and negative capital growth putting pressure on investors.

Looking ahead to 2025 and into 2026, conditions are expected to improve. Inflation is projected to remain within the RBA’s target range, which should ease borrowing costs and provide some relief for property owners and investors.

At the same time, strong migration is likely to tighten property supply, pushing rental yields higher and lowering holding costs. As rental returns improve and expenses decrease, the market is expected to strengthen further in 2026, offering a more favourable environment for investors.

Many Melbourne suburbs have already seen price corrections of around 5%, creating opportunities for savvy buyers to enter the market at a discount and position themselves for potential gains as the market recovers.

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