Sydney and Melbourne remain two of Australia’s most closely watched property markets, but recent conditions suggest they are moving in different directions.

In this episode of The CEO Breakdown, John Saade examines weakening auction activity, changing property values and the growing gap between Sydney and Melbourne. While Sydney continues to command higher median prices, Melbourne has experienced a much sharper decline, potentially creating opportunities for investors who focus on fundamentals rather than headlines.

But does a lower-priced market automatically make Melbourne the better investment? Not necessarily. Property investors need to consider rental income, purchase price, borrowing costs, market conditions, future growth and overall risk before deciding where to invest.

Sydney vs Melbourne Property: What Is Happening in the Market?

Sydney and Melbourne have both experienced softer property conditions, with higher interest rates, persistent inflation and weaker investor borrowing affecting buyer and seller behaviour.

Auction activity has also weakened. According to the discussion in John’s CEO Breakdown, Sydney recorded significantly fewer auctions than the same period a year earlier, while clearance rates were well below the stronger results seen previously.

This matters because auction volumes and clearance rates can provide an indication of market sentiment.

When buyers become hesitant, sellers can also delay listing their properties. This can create a cycle of:

• Fewer buyers attending auctions
• Sellers holding properties back
• Lower transaction volumes
• Greater pressure on vendors to adjust expectations
• Increasing uncertainty around property values

However, the performance of individual suburbs and property types can vary considerably, so capital-city statistics should not be treated as a guarantee of what will happen to a particular property.

Melbourne Property Has Fallen Further Than Sydney

One of the most interesting comparisons raised by John Saade is the difference in recent performance between the two markets.

The episode highlights a significant decline in Melbourne’s auction house median, while Sydney’s median remained considerably stronger.

At first glance, falling prices may appear to be a reason to avoid Melbourne. For an investor, however, a decline can also change the relationship between purchase price and rental income.

This is where the investment analysis becomes more important.

A cheaper property is not automatically a better investment. But if the price has fallen while rental demand and rental income remain relatively resilient, the property’s potential rental yield may become more attractive.

Why a Falling Market Can Attract Investors

Investors should not simply ask:

“Which city has the highest property prices?”

Instead, they should consider:

• How much does the property cost?
• How much rental income can it generate?
• What are the ongoing ownership costs?
• What is the expected net rental yield?
• How much debt is required?
• What are the local supply and demand conditions?
• Is the purchase price supported by the property’s fundamentals?

This approach can reveal opportunities that headline price movements do not.

Melbourne vs Sydney Rental Yields

One of John’s key arguments is that Sydney’s higher property prices do not necessarily translate into proportionately higher rental income.

That distinction is important for property investors.

If two properties generate similar rental income but one costs substantially more to purchase, the cheaper property may produce a stronger rental yield.

The CEO Breakdown discussion suggests Melbourne rental yields can approach the mid-four per cent range in some circumstances, compared with Sydney yields in the mid-to-high three per cent range.

Actual yields will vary significantly by suburb, property type, purchase price and rental income.

Gross Yield vs Net Yield

Investors should also distinguish between gross and net rental yields.

Gross rental yield generally compares annual rental income with the property’s purchase price.

Net rental yield takes relevant property expenses into account, such as:

• Property management fees
• Maintenance
• Insurance
• Council rates
• Land tax
• Strata costs, where applicable
• Other ownership expenses

For investors comparing Sydney and Melbourne, looking beyond the headline rental yield is essential.

Is Melbourne Property Undervalued Compared With Sydney?

John Saade raises an important investment concept: relative value.

Melbourne has experienced a much tougher period than Sydney, which means the gap between the two markets has changed.

That does not mean Melbourne property is guaranteed to rebound.

However, investors can consider whether the current pricing reflects the risks associated with the market.

If Melbourne properties can be purchased at lower prices while still producing reasonable rental income, some investors may see a more attractive risk-return proposition than paying a premium for comparable Sydney property.

Why Investors Should Look Beyond Property Headlines

Property markets are often discussed in terms of whether prices are rising or falling.

But experienced investors may instead focus on the underlying numbers.

For example, a market experiencing falling prices could potentially offer:

• Lower entry prices
• Improved rental yields
• Greater negotiating power
• Less competition from buyers
• Potential long-term upside if fundamentals improve

On the other hand, falling prices can also indicate genuine problems, such as weak demand, oversupply or deteriorating economic conditions.

The important question is therefore not simply “Has Melbourne fallen?”

It is “Why has Melbourne fallen, and do the underlying fundamentals justify the current price?”

Sydney Property Still Has Strong Advantages

Despite Melbourne’s relative value, Sydney should not be dismissed.

Sydney remains one of Australia’s largest and most established property markets. Its higher prices reflect, among other things, strong demand, limited land in many established areas and the city’s economic importance.

For some investors, Sydney may still make sense because of:

• Strong population and employment demand
• Established infrastructure
• Deep property markets
• Strong long-term buyer demand in many locations
• Potential scarcity in desirable suburbs

However, these advantages need to be weighed against higher purchase prices and potentially lower rental yields.

A strong market does not automatically produce the best investment return.

Which Market Makes More Sense for Property Investors?

There is no universal answer.

The better market depends on the investor’s objectives, financial position, borrowing capacity and risk tolerance.

An investor focused heavily on rental income may place greater emphasis on Melbourne’s relative affordability and potential yield.

An investor prioritising established demand and long-term capital growth may prefer selected Sydney locations.

Rather than choosing an entire city, investors should assess individual properties and suburbs.

A Practical Sydney vs Melbourne Investment Checklist

Before purchasing, consider:

1. Purchase price – Is the property reasonably priced compared with comparable properties?
2. Rental income – What rent can realistically be achieved?
3. Net yield – What remains after ownership costs?
4. Borrowing costs – Can the investment remain sustainable if interest rates remain elevated?
5. Vacancy risk – How strong is rental demand in the area?
6. Supply – Are many new properties likely to enter the market?
7. Capital growth potential – What local factors could support future growth?
8. Tax implications – How will the property affect your overall tax position?
9. Cash flow – Can you comfortably cover periods of vacancy or unexpected expenses?
10. Exit strategy – Who is likely to buy the property when you eventually sell?

Don’t Invest Based on Price Alone

One of the biggest lessons from the Sydney versus Melbourne comparison is that price alone does not determine investment value.

A property that has fallen 15 per cent is not necessarily a bargain.

Likewise, a property that has continued rising is not necessarily overpriced.

Investors need to understand what they are actually buying and whether the expected return justifies the risks involved.

Melbourne’s recent weakness may make it worth a closer look, particularly for investors who focus on rental yields and relative value. But that does not mean every Melbourne property is attractive, just as Sydney’s higher prices do not mean every Sydney property is a poor investment.

The strongest strategy is to assess the numbers rather than simply follow market sentiment.

Frequently Asked Questions About Sydney vs Melbourne Property

Is Sydney property better than Melbourne property?

Not necessarily. Sydney has higher property values and strong demand, while Melbourne may offer lower entry prices and potentially stronger rental yields in some areas. The better option depends on the individual property and investor’s objectives.

Is Melbourne property a good investment?

Melbourne may offer opportunities for investors who focus on relative value, rental yields and long-term fundamentals. However, investors should assess individual suburbs and properties rather than assuming the entire Melbourne market will recover.

Why are Melbourne rental yields potentially higher than Sydney?

Sydney property prices are significantly higher in many areas without a proportionate increase in rental income. This can result in lower rental yields compared with more affordable markets.

Should I buy property in Sydney or Melbourne?

There is no one-size-fits-all answer. Compare purchase price, rental income, expenses, borrowing costs, vacancy risk, supply and potential capital growth before making a decision.

Does a falling property market create an investment opportunity?

It can, but falling prices can also reflect genuine weaknesses in demand or economic conditions. Investors should investigate why prices are falling and whether the property’s fundamentals remain sound.

Looking at Property Investment? Talk to Latitude Accountants

Choosing between Sydney and Melbourne is only one part of a property investment decision. Your tax structure, financing, ownership structure, rental income and long-term strategy can all affect the outcome.

If you’re considering purchasing an investment property or reviewing your existing property portfolio, Latitude Accountants can help you understand the tax and financial considerations relevant to your circumstances.

Latitude Accountants

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Need an accountant? Request a free consultation for ABN holders

Disclaimer

This article provides general information only and does not constitute financial, tax, legal or property investment advice. Property markets, rental yields, taxation rules and individual circumstances vary. Speak with a qualified adviser before making investment or financial decisions.