The whispers are growing louder that apartment investment returns have crept back up to levels that can no longer be ignored, and investors are beginning to take notice.
After a few years of being in the investment shadows, apartments are returning to favour as both rental yields and broader economic conditions tilt back in their direction.
Recent research by mortgage aggregator Loan Market shows that overall growth in investment lending nationally for the year to March 2025 rose by 18%, outperforming the 14% growth among owner-occupiers. The research was covered by The Weekend Australian on Saturday running the story: “Investors swinging back to property.”
Several forces are aligning to fuel this shift. Equities markets are gyrating like Elvis, offering investors a rollercoaster ride of volatility. Also interest rates tipped to fall further and rents keep rising meaning property is back on investors’ playlist with above average returns.
Adding more heat, housing affordability and supply have become key battlegrounds in the current federal election campaign. Although the proposed housing incentives are primarily targeted at owner-occupiers and the affordability end of the market, history shows that when government policies drive a lift home values, all property owners (including investors) tend to benefit. A rising tide lifts all boats.
Most economists are now forecasting up to three interest rate cuts over the next 12 months. Provided inflation stays in the bottle, there could be even more. Lower borrowing costs mean that the gap between the cost of debt and rental returns will widen, increasing the appeal of leveraged property investments.
But are apartments really a good investment in today’s market?
Apartments typically offer a different return profile to houses. Apartments tend to generate stronger cash flow but can deliver lower long-term capital growth. However, when yields are high and the cost of debt is falling, that cash flow can do most of the total return heavy lifting.
To put it into perspective, Macquarie Bank is offering 3.74% per annum for a four year term deposit. Obviously cash in the bank has zero risk but 0% capital growth.
By contrast, an apartment that recently sold at 201 High Street, Prahran sold for $300,00 and showed an annual gross return of 8.34%, plus whatever capital growth is achieved over the holding period. Even after deducting say 30% of the gross income (for costs such as maintenance, management fees, rates and vacancy periods), the net return sits around 5.8%. Still very favourable compared to the fixed term deposit rate.
And there are plenty of similar examples across Melbourne. The below table shows a selection of recent sales (all in 2025) and the recent actual rent for that apartment. We have then calculated a simple unlevered gross annual return or yield.
| Property Address | Price | Weekly Rent | Gross return |
|---|---|---|---|
| Apt/572 St Kilda Rd, Melbourne | $335,000 | $625 | 9.73% |
| Apt/81 A’Beckett St, Melbourne | $385,000 | $700 | 9.48% |
| Apt/71 Abinger St, Richmond | $625,000 | $720 | 6.00% |
| Apt/2A Henry St, Windsor | $377,000 | $500 | 6.92% |
| Apt/33 Inkerman St, St Kilda | $380,000 | $530 | 7.27% |
| Apt/32 Lilydale Gve, Hawthorn | $335,000 | $485 | 7.53% |
| Apt/58 Clarke St, Southbank | $286,000 | $350 | 6.38% |
| Apt/6 St Kilda Rd, St Kilda | $525,000 | $625 | 6.21% |
The list of apartment sales showing similar returns is long. Gross yields above 6.5% are common. After allowing for costs, the net return comes back to around 4.5%. Even if investors allow for higher turnover of renters (eg. furnished six-month stays in the CBD), and net yields fall to around 4.0%, it still compares favourably to fixed term returns of 3.74%.
The reason for the higher return is a combination of the rental market dynamic and unchanged capital values. Rents have been rising strongly for 3 years, while capital values for apartments have remained largely unchanged. If, as expected, interest rates fall over the next 6–12 months, the positive spread between borrowing costs and apartment yields will widen even further. Eventually, values will respond, meaning investors will once again enjoy both strong annual returns and capital growth.
It’s also important to remember that new apartment supply is severely constrained. Large-scale apartment development remains uneconomic under current construction. At the same time, immigration levels are adding strong demand to inner-city rental markets.
More tenants, less supply, higher rents. This is all good news for investors already in the market, with the opportunity to ride the next wave of capital growth when it arrives while enjoying strong annual returns.
Apartment investment is officially back on the radar.
