Investors are Fleeing Melbourne – Here’s Why You Shouldn’t - searchpartyproperty

Investors are Fleeing Melbourne – Here’s Why You Shouldn’t

The Victorian property market is currently in the throes of a significant shift as investors rapidly sell off their rental properties.

According to research conducted by Property Investment Professionals of Australia, 31.35% of Victorian investors sold one or more rental properties in the past year, a figure significantly higher than the national average of 12.1%.

But why are investors fleeing Melbourne, and does the city still have potential for investors?

A primary driver behind the exodus is the raft of taxes and regulatory changes imposed by the Victorian government. Recent years have seen the introduction of higher land taxes, rental reforms, and a new levy for short-stay rentals such as Airbnbs.

Victoria now boasts the equal highest tax on foreign investment (FIRB), the highest stamp duty, and one of the highest land taxes in the nation, alongside other uniquely high costs for property owners.

These changes have significantly increased the financial burden on property investors.

The large-scale sell-off of investment properties is exacerbating an already critical rental crisis in Melbourne. The city’s rental vacancy rate hovers around a mere 1%, and with fewer rental properties available, rent prices are predicted to continue rising sharply. The mass exodus of investors is expected to severely impact tenants, driving rents higher due to the reduced supply of rental accommodations.

Despite the challenges, Melbourne remains a viable and potentially lucrative option for investors willing to navigate the current landscape. Areas like Geelong, Berwick, Delacombe, Cranbourne, and Frankston retain positive underlying fundamentals and strong growth prospects.

These regions benefit from robust infrastructure, diverse industries, and above-average population growth, making them attractive for long-term investment. Moreover, with fewer buyers in the market, there is less competition, allowing astute investors to negotiate better deals.

Victoria’s subdued price growth, post-pandemic, also means that it may represent a larger upside in the coming years for investors who avoid buying in at the peak of growth elsewhere. For example, despite Perth’s ongoing boom, analyst sentiment has become more mixed of late.

Nonetheless, investing in Melbourne requires a long-term perspective, focusing on the city’s underlying strengths. The state’s population growth, economic diversity, and infrastructure development provide a solid foundation for future capital growth and rental income.

Although the immediate environment has become less welcoming for property investors, the fundamentals suggest that Melbourne will remain a strong investment destination for those who can see past the current difficulties.

The current exodus may create opportunities for savvy investors to capitalise on less competition and secure properties with strong growth potential.

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