Industry Insight: REIV Economic Forecast

On June 19, 2025, we attended the Real Estate Institute of Victoria's (REIV) Economic Forecast Lunch at Zinc, Federation Square. The event featured leading industry experts discussing:

  • Interest Rate Projections: Insights into potential rate cuts and their implications.

  • Federal Elections: Analysis of policy changes affecting the real estate sector.

  • Economic Shifts: Understanding global trade tensions and their impact on the Victorian market.

Our interest naturally peaked while discussing the Melbourne property market & construction cost trends. 

Over the 12 months to May 2025, Melbourne's property market has shown a patchy and divergent performance across regions. According to the latest CoreLogic data:

  • Inner-city and middle-ring suburbs have mostly held steady or grown modestly, with several areas (such as parts of Port Phillip and inner-north) recording 0–5% growth in dwelling values.

  • Pockets of strong performance (5–10%+ growth) are scattered across fringe areas, including parts of Casey and select western growth corridors.

  • However, a broad belt of outer suburbs and regional fringes (particularly in the north, east, and southeast) experienced declines in dwelling values, ranging from <5% to over 10% in some pockets.

This pattern reflects an ongoing rebalancing post-COVID, as affordability pressures, borrowing capacity, and buyer demand shift back toward established and better-located suburbs.

The construction sector continues to grapple with the aftershocks of the recent cost surge. While the pace of construction cost growth has now moderated:

  • Annual change in the Cordell Construction Cost Index (CCCI) has fallen to 2.9%, well below the peak of 11–12% seen during the post-COVID supply squeeze.

  • Quarterly increases are now below long-term averages, which is bringing more predictability to budgeting and feasibility planning.

Despite this easing, builders are still dealing with the legacy of a 31% jump in construction costs over five years, making project margins tight. Key material costs that surged include:

  • Steel products: +42.7%

  • Timber, board & joinery: +34.7%

  • Concrete & sand: +16.2%

So what does this mean for buyers, developers, and investors?

  • Buyers: Be cautious of seemingly ‘discounted’ outer-ring properties that may continue to soften. Focus on areas showing resilience or consistent demand.

  • Investors: Inner and middle-ring locations remain stable bets, especially with rental yields holding firm.

  • Developers: While costs are stabilising, feasibility remains a challenge. Projects with strong pre-sales, premium locations, or innovative construction methods may fare best.

Interesting times, thanks to the REIV for organising another insightful and thought provoking event!

Dianne Kristel Catindoy