Lower interest rates, firm population growth and tight supply set the stage for a late-2025 upturn, though Melbourne’s price discount to other capitals is likely to persist, according to new research.
2 min
Melbourne’s residential market appears to be on a comeback path, with a pricing recovery expected to take shape from late 2025 and continue through 2026 as borrowing costs ease and demand holds up.
New research by the MaxCap Group, commercial real estate fund manager, argues that lower mortgage rates will be the key catalyst for the next upswing, with stabilising sentiment and gradually improving activity reinforcing the turn.
The city has underperformed since 2022. While Brisbane, Perth and Adelaide posted strong gains, Melbourne recorded a modest correction.
One effect has been a lift in relative affordability. Local prices now sit below a wide set of comparable markets, including Brisbane, the Gold Coast, the Sunshine Coast, Canberra and Adelaide, and could trail Perth by year end.
That discount is expected to endure even as prices rise, reflecting differences in tax settings, investor participation and recent growth momentum elsewhere.
Several cyclical and structural forces are in play. Higher interest rates and softer sentiment have been a clear headwind over the past two years.
A heavier state tax take as Victoria pursues budget repair has also weighed on investor activity. Property-related imposts such as land transfer duty and land tax are taking a larger share of state revenues in 2025–26, and that has cooled appetite at the margin.
Set against those drags are supportive fundamentals. Population growth remains robust, interstate outflows are easing, and the construction pipeline is constrained.
The research estimates an 8,000-dwelling shortfall in Victoria in 2025, with the shortage most acute in the city of Melbourne. Rental markets remain tight, with a residential vacancy rate of 1.8 per cent in August pointing to ongoing pressure on rents and a continued incentive to build.
At a sub-market level, undersupply is most evident across the inner and middle rings and through the south-east corridor. There are early signs of price stabilisation, with more than half of the most-traded suburbs shifting from annual declines to annual growth.
The initial gains are concentrated in more affordable fringe areas, where price points and borrowing capacity are best aligned as rates begin to fall.
Looking ahead, model-based projections indicate prices should lift as mortgage rates decline, incomes rise and building activity gradually recovers. The upgrade cycle is expected to be measured rather than explosive.
Without near-term reform to property taxes, the recovery is likely to be more subdued than previous Melbourne upswings, and the city’s price discount to other capitals is expected to persist through this cycle.
The research also contrasts Melbourne’s broader post-pandemic performance with other markets, noting a deeper peak-to-trough decline in CBD office values than Sydney.
Even so, the residential turnaround is framed as primarily a function of the interest rate cycle rather than policy shifts. Risks to the outlook include a slower-than-expected pace of rate cuts, construction cost pressures that delay supply, and any renewed deterioration in investor sentiment.
For buyers, the combination of improved affordability, tightening rental conditions and the prospect of lower rates suggests a narrowing window before momentum rebuilds. For sellers, the message is that late 2025 into 2026 should deliver firmer conditions, especially in well-located, appropriately priced stock across the inner and middle rings where undersupply is most pronounced.
Rugged coastal drives and fireside drams define a slow, indulgent journey through Scotland’s far north.
A haven for hedge-fund titans and Hollywood grandees, Greenwich is one of the world’s most expensive residential enclaves, where eye-watering prices meet unapologetic grandeur.
Australia’s wealthy class is expanding fast, and Knight Frank says that a surge in billionaires is reshaping the nation’s luxury property market.
3 min
Australia’s luxury property market is being quietly reshaped by one of the most significant wealth expansions in the world.
According to Knight Frank’s latest Wealth Report, the country’s billionaire population is set to grow by 77 per cent over the next five years, rising from 48 to 85 individuals.
That surge sits within a broader wave of wealth creation. Ultra-high-net-worth individuals, those with more than US$30 million, are forecast to increase by nearly 60 per cent to over 26,000 Australians by 2031.
Globally, the pace is accelerating. The report reveals that 89 new ultra-wealthy individuals are created every day, a figure that underscores a structural shift in capital formation rather than a cyclical upswing.
For luxury property markets, this is not just a headline number. It is a demand driver.
Australia’s wealth story is increasingly underpinned by diversification across resources, finance, technology and services, creating a depth of private capital that is both mobile and strategic.
And mobility is key. The ultra-wealthy are no longer tied to a single market. Instead, they are operating across multiple global hubs, maintaining footholds in cities like London, New York and Singapore, while using Australia as a stable base.
In this environment, real estate becomes less about shelter and more about positioning. Trophy assets remain desirable, but capital is increasingly being deployed across the full risk spectrum, from long-term holds to value-add opportunities. For Australia, the implications are clear. As wealth expands, so too does the expectation of product, and the locations that can attract it.
The billionaire effect
While property remains central to wealth preservation, the latest data shows that capital is increasingly spreading across luxury asset classes, albeit with a more disciplined approach.
Knight Frank’s Luxury Investment Index recorded a modest 0.4 per cent decline in 2025, signalling a stabilisation phase after several years of correction.
But beneath that headline number is a more telling shift. Collectors are moving away from speculative buying and toward assets defined by rarity, provenance and cultural significance.
Impressionist art led the market, rising 13.6 per cent, buoyed by landmark sales including a US$236 million Klimt painting. Watches also performed strongly, up 5.1 per cent, driven by continued demand for brands like Patek Philippe and Rolex.
At the same time, more volatile categories have corrected. Whisky values fell 10.9 per cent, while parts of the fine wine market have softened following pandemic-era highs.
Perhaps the most notable trend is behavioural. Younger investors are entering the market through fractional ownership platforms, gaining exposure to high-value assets that were once out of reach.
For property, the parallels are clear. The same focus on scarcity, narrative and long-term value is increasingly shaping buying decisions at the top end of the residential market.
Global wealth
The growth in billionaires is not just increasing demand, it is changing where that demand is directed.
In Australia, Brisbane has emerged as one of a handful of global cities experiencing rapid change in its luxury positioning. The city’s transformation is being driven by infrastructure investment and the 2032 Olympics, with top-end apartment prices rising from around US$6 million to more than US$10 million in just 12 months.
Luxury price growth has remained steady, with Brisbane rising 2.1 per cent in 2025, while the Gold Coast recorded 2.8 per cent.
At the same time, buying power is tightening. US$1 million now buys 5 per cent less in Brisbane than it did five years ago, reflecting the upward pressure on prime markets.
The trend is not confined to capital cities. Regional lifestyle markets are also capturing attention. Geelong’s waterfront has been identified as one of the world’s hottest luxury residential markets, driven by a combination of coastal amenity, infrastructure and relative value.
In these markets, pricing is no longer the sole driver. Lifestyle, accessibility and long-term growth are increasingly shaping buyer decisions, particularly among globally mobile wealth.
Alternative luxury assets
Beyond residential property, high-net-worth individuals are continuing to diversify into alternative assets that combine lifestyle and investment potential.
One of the most compelling examples is vineyard investment. Knight Frank’s Global Vineyard Index highlights the Barossa Valley as one of the best-value wine regions globally, where US$1 million can secure more than 18 hectares of land.
Despite a 10 per cent decline in land values over the past year, the broader outlook remains positive, particularly as the global wine industry shifts toward premiumisation.
This “trading up” trend is seeing consumers favour higher-quality, provenance-driven wines over mass-market products, reinforcing the long-term appeal of established regions like the Barossa and Eden Valleys.
For investors, the appeal lies in the intersection of lifestyle and capital preservation. Vineyard assets offer not only production potential, but also a narrative — something increasingly valued in a market where experience and authenticity carry weight.
