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Melbourne Property Update: The Forces Moving the Market
In our 2026 Wakelin Melbourne Property Report, published early this year, we identified the key forces shaping Melbourne’s trajectory – from the structural value case and the return of investor interest, through to the confidence dynamics that make this market uniquely sensitive to rate signals and policy shifts.
The 2026 Wakelin Melbourne Property Report posed six questions designed to frame the year ahead, and remains essential reading for anyone looking to understand the foundations of where Melbourne sits.
Since publication, the landscape has shifted materially.
The federal government’s negative gearing and capital gains tax (CGT) changes have been legislated. New state-level reforms have entered the picture.
And a combination of geopolitical pressure, shifting rate expectations and broader compounding policy changes have tested the confidence that was beginning to rebuild through 2025.
This article surveys where things now stand across the sales and rental markets, and what it means for buyers, sellers and investors navigating the second half of 2026.
New property legislation in 2026
Negative gearing and capital gains tax
Parliament has now passed the negative gearing and CGT changes. Losses from established residential property can no longer be offset against salary income. The 50% CGT discount has been replaced by an indexation model.
However you view these changes, they provide clarity. Investors can now make decisions based on known conditions rather than speculation.
The key questions are straightforward.
Is established residential property investment still the right strategy for you?
If so, how does reduced borrowing capacity affect what you can spend?
If not, what are the alternatives – off-the-plan purchases, commercial property, or redirecting capital elsewhere entirely?
Our position remains the same: negative gearing was never the reason to buy an investment property, and its removal doesn’t change the fundamentals of sound asset selection.
Self-managed super fund borrowing
As part of the deal between the Labor government and the Greens to secure passage of the NG/CGT changes, borrowing to purchase residential property through self-managed super funds will be banned. The deadline is 45 days after royal assent – our understanding is 10th August 2026. Contracts exchanged before that date will be honoured.
We’ve seen a notable increase in enquiry over the past couple of weeks from people looking to act before the window closes. Most had been planning this for some time and are simply bringing it forward.
Our advice has been consistent: if it forms part of your strategy and you can find the right property, proceed. But don’t rush into the wrong asset just to beat a deadline. Asset selection still comes first.
Proposed Victorian property reforms yet to be decided
Disclosed reserve prices
The Victorian Government is introducing legislation requiring vendors to publish their reserve price at least seven days before auction. The stated objective is to prevent buyers wasting time and money pursuing properties where the reserve far exceeds the quoted range.
Our concern is that this will push more sales away from auctions and into private sale or expression of interest processes – which are inherently less transparent.
At auction, you can see who you’re competing against, what they’re bidding, and whether the competition is genuine. In a private sale negotiation, you’re relying on the agent’s word that another buyer exists. That’s a significant downgrade in transparency for the buyers these reforms claim to protect.
We’ve covered this in more detail in our earlier blog on the proposed underquoting reforms.
ON GROUND CASE STUDY
Why disclosed reserves won’t solve the problem they’re designed to fix
Last month, a house in the inner north was listed for auction with an initial quoted range of $1.3 million to $1.4 million. The campaign went well – with strong interest across the first couple of weeks. The agents moved to a fixed advertised reserve of $1.5 million.
The auction was fiercely competitive. Multiple bidders drove the price well past the reserve. The property sold for over $1.9 million.
Under the proposed disclosed reserve legislation, the $1.5 million figure would have been published seven days prior. Every buyer who had spent money on building inspections, contract reviews and due diligence believing they were competitive at that level would still have been blown out of the water. The disclosed reserve changed nothing about the outcome. The price was driven by buyer competition, not by the vendor or the agent.
This is the fundamental issue with the proposal. It assumes the gap between quote and sale price is a vendor or agent problem. In many cases, it’s simply what happens when multiple motivated buyers see value in the same property. No amount of disclosure prevents that.
State opposition proposals
The opposition has flagged raising the land tax threshold – currently $50,000, down from the previous threshold of $300,000 – and abolishing the short-stay accommodation tax.
Neither would dramatically shift property values or market activity. But for existing investors who’ve felt the cumulative weight of state-level changes over the past 18 months, any relief would be welcome. It’s been death by a thousand cuts. A reversal of even one or two would shift the tone.
Where the Melbourne market sits in mid-2026
Through 2025, there were genuine signs of improvement. Three interest rate cuts brought confidence back. Median prices started to rise. Supply levels were healthy without being excessive. Clearance rates hovered between 65 and 75 per cent depending on the time of year. The market was heading in the right direction after an extended flat period.
That momentum stalled towards the end of last year, when the Reserve Bank shifted from signalling further cuts to talking about rate increases due to inflation.
Then the federal budget landed in May, whatever confidence had been building evaporated quickly.
What the clearance rates and rents are telling us
Supply, during the first 4-5 months actually increased – largely driven by frustrated investors exiting the market. Clearance rates have fallen from the mid-60s at the start of the year to the low 50s, dipping below 50 per cent on several recent weekends. And those figures include properties that pass in to a genuine bidder and sell post-auction – meaning the under-the-hammer rate is weaker still. Median house and unit prices have both come backwards this year.
On the rental side, conditions are more stable. Median rents are up around 5 per cent over the past 18 months. The vacancy rate has tightened from 1.6 per cent late last year to 1.3 per cent now. If that continues to compress, rents will rise further.
Take home message
Melbourne’s property market is navigating a period of compounding pressures – federal tax changes, state-level proposals, geopolitical uncertainty and shifting Reserve Bank signals all hitting at once. Confidence is low and the data reflects it.
But within that environment, there is clarity. The legislative changes are now settled. The conditions are known. And for those in a position to act – whether upgrading a family home, entering the market for the first time, or making a considered investment decision – the reduced competition and softer pricing represent genuine opportunity.
As always, the fundamentals haven’t changed. Buy the right property, in the right location, for the right reasons. The market cycle will turn. It always does.
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