Investors pile back into housing as Melbourne regains favour

Property investors are shrugging off rising interest rates, speculation about changes to investor tax laws and higher state government charges to target quality properties, particularly those priced under $750,000.

Data compiled by REA Group and Westpac Bank shows the number of loans to property investors has soared by 64% from a low in early 2023.

The report also reveals renewed strong investor interest in Victoria, despite higher state-based property taxes and plenty of media coverage suggesting the state is “anti-investor”.

The details

The PropTrack Westpac Investor report shows investor lending has climbed dramatically over the past two years, fuelled by tight rental markets, rising rents and strong capital gains.

Across the country, the number of new loans going to investors has risen by roughly two-thirds since early 2023, with investors now accounting for a large - and in some states near-record - share of housing finance.

The trend has been particularly pronounced in Queensland, Western Australia and South Australia, where investor lending is at or near historic highs.

But after lagging behind, Victoria is now re-emerging as a key battleground for investor interest.

REA Group data shows about 75% of investor inquiries are about properties priced under $1 million, with about 55% targeting properties under $750,000.

This often puts investors in direct competition with first-home buyers targeting “entry-level” properties and explains the big price uplifts seen recently at the affordable end of the market, while more price growth has stalled for more expensive homes.

Underlying the surge in investor activity is an exceptionally tight rental market.

Across Australia, REA Group estimates properties are leasing in just 20 days on average, dropping to as little as 18 days in Brisbane, Adelaide and Perth - clear evidence of intense competition among tenants.

While Melbourne has seen some easing, with leasing times lengthening, conditions remain tight by historical standards, with vacancy rates still below 2%.

Rents have surged 55% nationally since the start of the pandemic, far outpacing income growth and reinforcing the attractiveness of rental property as an income-generating asset.

Although rent growth has slowed from the double-digit increases seen in 2022 and 2023, it remains solid and continues to exceed inflation in many markets.

Melbourne rebound

Despite a period of softer activity linked to higher land taxes and policy changes, Melbourne is rapidly regaining attention from investors.

According to the PropTrack Westpac Investor report, investor enquiry levels across Melbourne jumped significantly in 2025, with the city dominating the list of suburbs recording the biggest increases in investor interest nationwide.

Areas such as Cardinia, Whittlesea and Hobsons Bay all recorded strong rebounds, while established investor hotspots including Tullamarine–Broadmeadows, Brimbank and Wyndham continue to attract significant attention.

The turnaround suggests that while state government policy settings may have dampened sentiment temporarily, underlying fundamentals are drawing investors back.

Compared to other capitals, the PropTrack Westpac Investor report says Melbourne offers a compelling mix of relative affordability, improving rental conditions and the potential for future price growth after a prolonged period of underperformance.

While home prices in cities like Brisbane, Adelaide and Perth have more than doubled since 2020, Melbourne has recorded much more modest growth of just over 20% across the same period.

That divergence has created what many investors now see as a value opportunity, especially compared to Sydney, where entry costs remain significantly higher.

At the same time, rental yields in Melbourne have stabilised and are now comparable to those in smaller capitals, further strengthening the investment case.

The report’s ranking of top-performing investor suburbs highlights where opportunities have emerged within Melbourne.

For houses, suburbs such as Coolaroo, Carrum and Meadow Heights topped the list, delivering price growth more than five times the city average, alongside strong rental returns and quick leasing times.

In the unit market, Notting Hill, Burwood East and Cremorne stood out for their combination of solid capital gains, above-average yields and strong tenant demand.

These results reinforce a broader trend: investors are targeting “middle-ring” and more affordable suburbs, where both rental demand and growth potential remain strong.

Another notable trend is the growing role of interstate investors.

Westpac data shows that one in five investors now purchase property outside their home state, with Victoria among the top destinations for out-of-state interest.

Homes in Victoria are attracting a high share of enquiries from interstate buyers, alongside Queensland, suggesting investors are increasingly willing to look beyond their local markets in search of value.

This influx of external capital could further support Melbourne’s recovery in investor activity.

Resale gains

For investors who have already been in the market, the gains have been substantial.

The report shows that more than 93% of investor resales in late 2025 delivered a profit - the highest level in at least a decade.

In boom markets such as Brisbane, Adelaide and Perth, where prices have surged dramatically, almost every investor sale resulted in a gain.

Melbourne stands out as the exception.

Its slower price growth has meant a lower share of profitable resales, a factor that may have contributed to its earlier decline in investor interest.

But that same dynamic is now working in reverse, with investors increasingly viewing Melbourne as a market with room to grow, rather than one that has already peaked.

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The outlook

Looking ahead, the report suggests national investor activity is likely to remain strong through 2026, even as rising interest rates begin to weigh on borrowing capacity.

The Reserve Bank has already lifted rates twice in early 2026, with further increases expected, which is likely to slow the pace of home price growth.

However, the fundamentals supporting investor demand remain firmly in place.

Rental vacancy rates are still low, supply remains constrained, and population growth continues to drive demand for housing.

“Tight rental markets and wider shortages of supply will still present opportunities,” says Westpac’s Chief Economist Luci Ellis.

“Shortages and a wider economic backdrop of steady growth and a stable labour market should limit the downside risks for prices.

“Overall, while the negatives for investors around prices and interest rates will ebb and flow with the economic cycle, the opportunities created by tight supply and intergenerational (wealth) transfers will be enduring,” she says.