Regional Victoria offers investment alternative amid tax changes
As property investors shy away from Melbourne in response to a string of property-related tax reforms, some regional Victorian hotspots still offer great rent yields and capital growth opportunities for real estate investors.
Property investors are increasingly wary of investing in Victoria due to the recent Government policy changes towards short-stay accommodation as well as changes to the land tax thresholds impacting investors profitability and cashflow.
After being overtaken by Brisbane, Melbourne is now the third most expensive city when it comes to real estate in Australia.
Victoria has a diverse property market in addition to Melbourne, which has a median property value of $1.15 million to the beautiful regional areas like the Mornington Peninsula with a median house price of almost $2 million (median house price $1.195 million as at April 2024.
The Government’s changes to property investment in Victoria
From 2025, the Victorian Government will charge a 7.5 per cent levy on all revenue collected from short-stay accommodation (such as Airbnb, Stayz, etc).
The introduction of this new levy is to specifically target the housing crisis and lack of affordable housing options because of the strong rise in short-term accommodation across the state that has come at the expense of long-term accommodation.
The levies received will be used to fund the construction of social and affordable housing across Victoria.
Some local councils have already implemented charges and levies for these types of short-stay accommodation options, however, these will be removed in 2025 when the State Government’s levy is introduced.
There have been many complaints that these levies are too high and will really impact the Victorian tourism industry, but it is also prompting property investors to look elsewhere.
Land tax thresholds
On the first of January 2024, the land tax thresholds changed in Victoria so that land tax is now payable on land values of $50,000 or more (previously the tax applied on land values greater than $300,000).
The land tax structure was updated in order to catch more property investors, secondary property owners (holiday homes) and increase the tax collected from those already paying it.
Due to this significant decrease in the land tax threshold, many investors are moving away from Victoria to invest in property elsewhere.
The short-term rental accommodation levy in Victoria is the first to be introduced in Australia.
Understanding Victoria’s property market
As an investor, it is important to keep a clear mind amid shifting market trends and evolving economic landscapes, and it’s crucial to identify the areas with the most potential for growth and stability.
Like much of the world, Victoria’s real estate sector has been shaped by recent global events, including economic fluctuations and changes in lifestyle preferences.
The post pandemic surge in the ‘work from home’ culture, which has forced families to re-think their living arrangements and consider a home office and more outdoor space as extra time is spent at home.
People are now moving out of the capital cities and into the regions. Regional locations have grown in demand because they offer more space, affordability and a change in lifestyle.
Looking regionally in Victoria for property assets
Regional Victoria now offers a compelling proposition for property investors and homeowners.
For investors, regional Victoria can offer more than the picturesque landscapes and vibrant communities but can provide the opportunity to invest in an area that offers capital growth and rental returns.
Additionally, the Victorian Government has initiatives being implemented that are aimed at decentralisation and regional development, which further bolsters the investment appeal of regional Victoria.
Regional areas in which to invest in property
- Geelong
Located southwest of Melbourne, Geelong has undergone a remarkable transformation in recent years with the addition of many modern amenities, a revitalised waterfront precinct, burgeoning arts scene, and the area has undergone gentrification that enhances investment prospects.
The median house price in Geelong has risen to $977,500 (April 2024) which is a 6.25 per cent annual growth, up from $720,000 in 2020. It’s steady average annual growth rate of 6.31 per cent and population growth rate of 11.1 per cent has made it attractive for investors.
- Shepparton
Positioned in the Goulburn Valley, Shepparton serves as a major agricultural hub and regional centre for Northern Victoria. The city’s economy benefits from its agricultural industry, food processing sector, and proximity to Melbourne.
With affordable housing options and a growing population, Shepparton provides some compelling opportunities for property investors seeking steady rental yields.
The median rental house price in Shepparton sits at an affordable $445,000 and annual growth rate of 3 per cent (April 2024), up from a median house price of $283,000 in 2020.
Investors are attracted to the average annual growth rate of 10.5 per cent alongside the average gross rental yield of 5.1 per cent (April 2024).
The main industries in Shepparton are healthcare and social assistance, followed by retail, agriculture, forestry, fishing and manufacturing.
- Warrnambool
If you’re seeking attractive rental yields and affordable prices, then Warrnambool situated on the scenic Great Ocean Road could be an option.
The city’s main industries include agriculture, tourism and education, and areas like East Warrnambool and Dennington are popular because of their proximity to beaches, schools and essential amenities.
The median house price in Warrnambool is $593,000, up from $368,500 in 2020. The average annual growth rate is 10.95 per cent. The average growth rental yield is 4.55 per cent, providing attractive returns.
The rental trend for both units and houses in Warrnambool has steadily risen since 2015, but if you’re looking to invest here it is important to do a lot of due diligence as there is some evidence it may be nearing its property cycle peak.
What to do before investing in Victoria
While regional Victoria offers promising investment opportunities, it is important to always complete thorough due diligence and research before making investment decisions. Some factors to consider:
- Market research: Analyse local market trends, vacancy rates, rental yields and infrastructure developments to gauge the investment potential of a particular area.
- Property type: Consider the type of property that aligns with your investment goals, whether it's residential houses, apartments or commercial real estate.
- Risk management: Diversify your investment portfolio and consider factors like insurance, maintenance costs and potential economic downturns to mitigate risks.
- Local regulations: Familiarise yourself with local regulations, zoning laws and taxation policies that may impact your investment strategy.
- Cashflow: Understand the impact of land tax, short-term rental accommodation levy, property management fees, repairs and maintenance and assess whether the cashflow position on your property will make it a viable investment.
