The Reserve Bank lifted rates again, spring auctions stayed soft and rental growth slowed. Yet the latest numbers show Melbourne apartments, and the inner city in particular, are proving far more resilient than houses.
Rates are higher, but units are absorbing it better
On 29 September the Reserve Bank raised the cash rate by 25 basis points to 4.60%, its fourth increase this year and the highest setting since late 2011. commbank +2 In its unanimous statement the Board said some of the upside risks to inflation are materialising and that further increases remain possible if needed, and according to Aussie, ANZ and Westpac both expect a fifth increase to 4.85% on 3 November while CBA and NAB expect a hold.
The effect on prices is real but uneven. According to Cotality’s October Home Value Index, Melbourne dwelling values fell 0.7% in September and are 6.2% lower over the year. Units fell just 0.3% for the month and 3.8% over the year, against a 7.3% annual fall for houses. cotality The Melbourne City region, which takes in the CBD, Southbank, Docklands and East Melbourne, has a median value of $504,340 and is down only 0.5% over the year, the fourth best result of any region across Greater Melbourne. cotalitycotality
Our view is that higher rates push buyers down the price ladder rather than out of the market entirely. When borrowing capacity shrinks, a well-located two-bedroom apartment becomes the realistic alternative to a house. That is a quiet tailwind for our postcodes.
Rents are cooling, yields are not
Cotality’s Quarterly Rental Review, released on 9 October, shows national rents rose only 0.5% in the September quarter and the national vacancy rate lifted to 2.1%, the highest since January 2025. Rental growth is meeting an affordability ceiling. propertyupdate
For Melbourne landlords, the picture is steadier than that headline. Cotality’s data shows Melbourne unit rents up 4.8% over the year to September, with gross unit yields at 5.2% compared with 3.5% for houses. cotality SQM Research’s August figures, released on 15 September, had Melbourne’s vacancy rate at 1.8%, level with a year earlier and the second highest of the capitals after Canberra, with unit asking rents averaging $600.86 a week.
We would caution landlords against assuming the rapid rent rises of recent years will return. Renewals now need to be priced to the market, not to last year’s momentum. A well-presented apartment leased quickly at a fair rent will usually outperform one that sits vacant for three weeks chasing an extra $20.
Spring favours buyers, with a catch
Cotality’s final figures for the week ending 4 October put Melbourne’s clearance rate at 50.4% across 666 auctions, up from 47.9% the week before but 16.1 points below the same week last year, and this week’s scheduled volumes were 46.9% lower than a year ago. Preliminary results for this weekend were firmer at 54.8%. capitalbrief Buyers have more choice and more time, and vendors are having to meet the market. cotality
Two policy settings matter here. First, the Federal Budget’s negative gearing changes mean established dwellings bought after 12 May 2026 lose the ability to offset rental losses against salary and other income from 1 July 2027, while new builds are exempt. williambuckcommbank Cotality’s October index says the less favourable negative gearing and capital gains tax settings have already seen a sharp reduction in investor demand. Second, Victoria’s expanded off-the-plan stamp duty concession has been extended to contracts signed before 21 April 2027, not 20 October as many still assume. pwctickboxconveyancing
Put together, sellers of established apartments should price and present for owner-occupiers, who are now the deepest pool of buyers. For buyers and investors, softer competition, firmer yields and a concession window that runs into next year make this a period to research carefully rather than rush.
Where we land
Melbourne’s apartment market is not booming, but it is not breaking either. Inner-city units are holding value better than houses, yields are the best in years, and buyers have negotiating room they haven’t had for some time. With another rate decision due on 3 November and a state election on 28 November, realestatebusiness we expect conditions to stay patient through to the new year. sladen
If you would like a clear-eyed appraisal of your apartment, or a conversation about where it sits in this market, the BONN. team is always happy to talk.
