Why Melbourne Apartments Are Becoming Higher Risk Investments
For many property investors, apartments, particularly inner-city Melbourne apartments, were once considered a safe and affordable entry point into the property market.
But the data now tells a very different story.
A growing number of investors are discovering that their apartment investment has delivered negative growth, and in many cases, significant financial losses — even before factoring in holding costs, body corporate fees, interest, and taxes.
This is not isolated.
This is becoming a systemic issue across Melbourne’s inner-city apartment market.
Inner Melbourne Apartments vs Houses: The Performance Gap
Nearly Half of Inner Melbourne Apartments Are Selling at a Loss
Recent data reveals a concerning trend:
- 43.7% of properties resold in Melbourne’s inner city recorded a loss
- National average loss rate: 5%
- Melbourne inner-city losses: Nearly 9 times higher than the national average
This means almost one in two sellers in inner Melbourne is losing money.
And these figures do not include:
- Body corporate fees
- Council rates
- Land tax
- Maintenance costs
- Insurance
- Interest paid
- Stamp duty
- Agent commissions
- Opportunity cost of capital
When these are included, the real losses can be significantly larger.
Why High-Rise Apartments Are Underperforming
8,000 Unsold Apartments Across Melbourne
Oversupply in inner suburbs is another major concern.
Property industry sources estimate:
- 8,000 completed apartments currently unsold across Melbourne
- 45,000 apartments built in the past four years
- Approximately 17% remain vacant or unsold
This level of oversupply in these locations is creating downward pressure on prices, particularly in:
- CBD
- Docklands
- Southbank
- Inner Melbourne high-rise precincts
These developments were primarily built for investors, but investor demand weakened significantly.
What This Means for Property Investors
Negative Equity Is Becoming a Real Risk
Negative equity occurs when: “Your property value falls below your mortgage balance.”
This creates a dangerous financial situation:
- You cannot sell without losing money
- You may still owe the bank after selling
- Refinancing becomes difficult
- Financial flexibility disappears
The Reserve Bank of Australia has confirmed:
Loans in negative equity are significantly more likely to fall into arrears and default.
This makes negative equity not just an investment problem — but a financial risk.
Should Investors Avoid Melbourne Apartments?
Inner Melbourne Apartment Losses: $100,000 – $210,000
Some verified examples show:
- Inner Melbourne apartment losses ranging $100,000 to $210,000
- One Docklands apartment purchased for $860,000
- Recently listed for $630,000 – $650,000
- Loss of $210,000 before costs
Once holding costs were added:
- 10 years body corporate
- Interest payments
- Rates and taxes
- Maintenance
The real loss approached could be around $400,000
That represents a decade of financial progress wiped out.
Three Major Forces Driving the Apartment Market Down
1. Oversupply of Investor-Focused Apartments
Between 2018 and 2022:
- Large numbers of high-rise apartments built
- Investor-focused designs
- Smaller floorplans
- Limited owner-occupier appeal
Now demand has softened, leaving excess supply.
2. Construction Quality & Defect Concerns
Many buyers are reporting:
- Structural defects
- Water leaks
- Cladding issues
- Lift failures
- Poor sound insulation
This is creating:
- Rising body corporate levies
- Special levies
- Investor exits
- Reduced buyer confidence
When investors begin exiting buildings:
- Levies rise
- Remaining owners pay more
- More owners sell
This creates a downward spiral.
Rising Holding Costs Are Making Apartments Harder to Hold
Costs continue increasing:
- Body corporate fees rising
- Insurance costs increasing
- Land tax changes in Victoria
- Vacant residential land tax expansion
- Higher interest rates
- As other owners in the building exit the property, the remaining owners Body Corporate Fees rise to take up those now defaulted / ‘disowned’ apartments
These costs can wipe out rental returns, leaving investors negatively geared with negative capital growth too.
Melbourne Apartment Prices Have Stagnated for 3 Years
Data shows:
- Median apartment price approximately $615,000
- No meaningful growth since early 2023
- Only 13% growth since pandemic began
During the same period:
- Houses grew significantly
- Land-based properties outperformed
- Apartments lagged behind
Melbourne apartments are now among the weakest performing property assets.
Builder Insolvencies Adding More Risk
Construction industry insolvencies:
- 2022: 1,793
- 2023: 2,546
- 2024: 3,217
- 2025: 3,596 (record high)
This raises concerns:
- Defect rectification risk
- Warranty risk
- Delayed repairs
- Increased strata costs
Investors are exposed to long-term uncertainty.
First Home Buyers Entering Risk Territory
First home buyer activity rising:
- 6.8% increase in loans
- Average loan size $607,500
- Some entering with 5% deposits
- If and when their apartments experience negative growth, they will pretty much be stuck with them having a 95% LVR and negative growth
If apartment values fall:
- Deposits could be wiped out
- Buyers enter negative equity faster
This creates future market risk.
15 Years of Minimal Apartment Growth
Historical data across inner Melbourne shows:
- Apartments bought off-the-plan at $750,000
- Sold 5 years later for $700,000
- Sold 10 years later for $695,000
That is 15 years of little to no capital growth.
For investors, this is particularly concerning.
The Market Outlook
Best Case
- Interest rate cuts improve demand
- Oversupply gradually absorbed
- Prices stabilise
Most Likely Scenario
- Apartment prices remain flat
- Houses outperform
- Investors trapped in low-growth assets
Worst Case
- Oversupply forces discounted sales
- Comparable values fall
- Negative equity increases
What This Means for Property Investors
If you own an inner circle medium to high density apartment in Melbourne :
- There is a meaningful risk of selling at a loss
- Check body corporate financials carefully
- Monitor vacancy and investor turnover
If you’re considering buying:
- Understand long-term growth history
- Avoid investor-heavy towers
- Prioritise scarcity and land value
If you’re investing strategically:
- Land-based assets continue outperforming
- Supply-constrained areas historically deliver stronger growth
The Bottom Line
- 43.7% of inner Melbourne resales at a loss
- 8,000 unsold apartments
- Rising holding costs
- Construction risks
- 15 years of minimal growth
For investors seeking long-term wealth creation, these are serious considerations.
Not all apartments are poor investments — but high-rise investor-focused apartments in inner Melbourne are increasingly showing higher risk and lower growth potential.
Understanding these risks before investing has never been more important.
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