Why Melbourne house prices are still at bargain prices while values have soared in other big capital cities

Houses near the beach an hour’s drive from Melbourne’s city centre are still available for pre-COVID prices of $600,000, as investors with holiday homes in more expensive postcodes nearby worry about changes to capital gains tax concessions and hefty State property taxes.

While real estate values have almost doubled in Brisbane and Perth during the past five years, in Melbourne they have only increased by 5.8 per cent since 2021, Cotality data showed.

The Victorian capital’s mid-point home price has only grown at a fraction of the 19.8 per cent increase in Australia’s average, full-time salary during that time.

Houses near the beach, 90km from Melbourne, are on the market for less than $600,000 in some cases, making them affordable for someone earning a salary in the low, six figures.

“They do seem to be remarkably good value for the lifestyle and the position - these are the last bastions of that sweet spot of commutability, liveability and affordability,” Cotality research director Tim Lawless told The Nightly.

“I don’t think they’ll last too much longer. Outside of Australia’s second largest city, Melbourne, the buy on the coastline within a pretty easy commuting distance is quite the rarity.”

Melbourne was also the only capital city market where wages have grown at a stronger pace than property since the era of COVID lockdowns and a record-low 0.1 per cent Reserve Bank cash rate.

Prices also peaked in March 2022, the month after Russia’s Ukraine invasion, that sparked 13 interest rate rises from the Reserve Bank of Australia, ending the era of fixed mortgage rates from the banks starting with a “two”.

The prospect of changes to the Federal Government’s 50 per cent capital gains tax discount and negative gearing, in the upcoming May 12 Budget, is potentially turning off investors who are already paying the State Labor Government a flat $975 tax on land values as low as $50,000 until 2033, to finance COVID lockdowns.

Panic selling is occurring more in upmarket postcodes along Melbourne’s Mornington Peninsula, like Sorrento and Portsea, and not the nearby affordable suburbs like Rye and Rosebud where houses are on the market for less than $600,000.

“Areas like Sorrento and Portsea, where people might have a holiday home, land tax going up for prestige properties has been a bit of a driver of those discretionary assets coming on the market,” Mr Lawless said.

“You’d have to think that any changes to property-related taxes are probably going to have a dampening effect on investment appetite across the board.”

The RBA’s two rate rises in 2026 so far have pushed typical mortgage rates above 6 per cent and caused house values to fall by another 0.8 per cent in April, the second full month of the Iran war.

Melbourne was the worst affected city even though its median house price of $972,734 in April was much cheaper than Brisbane ($1.22 million), Perth ($1.1 million), Adelaide ($1 million) and Canberra ($1.05 million).

“In Melbourne, it just seems the market is a lot more sensitive and fragile given that weaker economic fundamental,” Mr Lawless said.

The price drop was even worse than Sydney’s 0.7 per cent monthly fall, despite its median house price of $1.6 million being much more interest rate sensitive.

Before COVID, it was possible to buy a house near the beach for $600,000 on Queensland’s Sunshine Coast near Brisbane or at Umina on the NSW Central Coast an hour north of Sydney.

But double-digital annual house price increases since the pandemic have killed off that possibility, especially in coastal areas with a warmer climate.

Professionals able to work from home have been flocking to coastal areas within a two-hour drive of a major capital city, pushing up prices in regional areas.

But in a chillier Victoria, it’s still possible to buy a cheap house a short walk from the beach just an hour’s drive from Melbourne.

The Mornington Peninsula is particularly ripe for bargains with houses with a backyard on the market starting from just $580,000 at Rosebud. This is well below the suburb’s median price of $813,468.

The next suburb along the peninsula, Rye, has barely seen price growth during the past year, with values falling by 0.1 per cent to under $1 million.

Even so, houses are still listed from as little as $625,000, despite this suburb being very close to the upmarket beachside havens of Sorrento and Portsea, where trucking billionaire Lindsay Fox has a luxury, clifftop mansion.

Across Port Phillip Bay on the Bellarine Peninsula near Geelong, house prices at Barwon Heads - best known as the location for the 1990s TV series SeaChange - have fallen by 5.1 per cent during the past year to $1.4 million.

Neighbouring Ocean Grove has houses on the market for less than $700,000 and well below the seaside town’s $1.07 million mid-point.