SINCE 1997

Regional Victoria shakes off tax hikes to land rapid growth

A new property tax looks set to add even more to the cost of regional Victorian property in a market that is already running hot with an influx sea-change and tree-change arrivals.

Bourke St at Mt Buller after a snow storm in the Australian Alps in Victoria.
It's all upwards for regional Victorian property, including in the alpine regions.

A new property tax looks set to add even more to the cost of regional Victorian property in a market that is already running hot with an influx sea-change and tree-change arrivals.

Regional Victoria has experienced an epic boom in prices over the past year, with houses up by a whopping 27 per cent and units and apartment up by almost 20 per cent.

Driven by an exodus from Melbourne, work-from-home arrangements and a strong employment recovery, regions across Victoria have shared in the property windfall.

But the apply named Windfall Gains Tax, the state’s newest property tax, is starting to slow development site transactions and is likely to strangle housing supply and push up the costs of building a new home, even before it comes into effect in July next year.

The tax, known as the Windfall Gains Tax, will result in value increases from rezoning decisions to be taxed at 50 per cent if the uplift is above $500,000, phased in from $100,000.

Landowners will be given the option to defer payment of the tax until the next time the property is transacted, while a 30-year limit on deferrals will apply.

Modelling from the Housing Industry Association released last year showed the tax would increase the price of a vacant lot in Geelong, for example, by $53,000.

Pitcher Partners tax and property expert Craig Whatman said there was an atmosphere of caution around new acquisitions.

“There is cautiousness at the moment and a lot of uncertainty, my concern is that will ultimately lead to a lack of competitiveness between Victoria and our peers in New South Wales and Queensland.

“We’re seeing some of our clients starting to look to other jurisdictions.

“There has already been movement there because of COVID and there are opportunities elsewhere at the moment, particularly in Queensland, but I think one of the drivers is that Victoria is becoming more uncompetitive from a tax perspective.”

But despite the latest tax, which follows recent stamp duty and land tax increases, the property price is continuing unabated across regional Victoria.

In terms of the largest rise in values over the past year, the best performing regional markets across Victoria have been the Hume (values up 26.3 per cent) and the Warrnambool and South West (26.1 per cent).

The Hume region includes the Upper Goulburn Valley (25.3 per cent), Wangaratta-Benalla (23.9 per cent) and the Wodonga-Alpine region (28.5 per cent)

Warrnambool and South West includes Colac-Corangamite (33.6 per cent), Glenelg-Southern Grampians (23.0 per cent) and Warrnambool (22.8 per cent).

Robust regional Victoria

  Volume of listings Median vendor discount Median days on market Median value 12 month change in values
  Feb 21 Feb 22 Feb 21 Feb 22 Feb 21 Feb 22 Feb 21 Feb 22 Feb 21 Feb 22
Greater Melbourne 26,076 27,130 -2.9% -3.5% 31 32 $717,767 $799,756 -1.3% 12.5%
Rest of Vic. 9,643 8,556 -2.2% -2.3% 30 31 $436,154 $572,958 8.3% 22.3%
                     
Ballarat 858 918 -2.3% -2.5% 22 28 $458,217 $586,813 9.0% 15.5%
Bendigo 896 799 -1.8% -2.5% 24 30 $455,648 $597,767 8.8% 19.9%
Geelong 1,631 1,690 -2.5% -3.1% 25 28 $635,818 $798,993 6.9% 23.9%
Hume 1,016 827 -2.0% -2.6% 36 33 $387,250 $538,637 7.9% 26.3%
Latrobe - Gippsland 2,695 2,293 -2.0% -1.8% 32 36 $409,207 $557,537 9.7% 23.5%
North West 873 701 -3.0% -1.8% 22 27 $267,202 $335,302 11.2% 17.0%
Shepparton 818 602 -1.9% -2.2% 49 39 $316,955 $417,903 5.6% 19.5%
Warrnambool & South West 856 726 -2.4% -3.0% 33 36 $389,193 $516,027 9.1% 26.1%

Volume of listings is a count of the total number of unique listings across the region over the month of February. Vendor discount is the median difference between the original listing price and contract price over the three months ending February. Days on market is the median number of days between the first listing and contract price over the three months ending February. Median value is the 50th percentile of the underlying valuation estimates. 12 month change in the change in hedonic home value index From Feb 28 2021 to Feb 28 2022.

Real Estate Institute of Victoria (REIV) President Adam Docking said that after two years of lockdowns and spending more time in the home, people were attracted to the lifestyle on offer in the country regions.

“Whether you look at the property sale prices or the rental vacancy rates, all of the data tells the same story of each region showing strong growth,” he said.

“Several municipalities in the west have recorded significant increases in the December 2021 quarterly median prices, such as Ararat (19 per cent), Corangamite (13.5 per cent) and Pyrenees (13.1 per cent).

“The northern region saw an equally strong quarterly median house prices increase, with Indigo seeing a 13.2 per cent rise.

“In the Eastern Region, Latrobe (9.7 per cent) and Bass Coast (9.6 per cent) were not far behind.”

“So far, we’ve seen that the growth in regional Victoria has been driven by people migrating away from the city – looking for that sea or tree change, with some of the increase from investors, but it is too early for any impact from the re-opening of borders to be evident.”

Even regions that were struck by the tragedy of bushfires in 2020 have shared in the property price bounty.

Nerida Conisbee, Chief Economist for Ray White Group, said Mallacoota, one of the worst hit areas in the bushfires, now has house prices up 70 per cent compared to where they were three years ago.

“This is partly due to better and safer homes having been built and significant government spending to try to mitigate another disaster, however, it is also the case that Mallacoota is a beautiful part of regional Victoria where people want to live.”

CoreLogic Research Director Tim Lawless said regional markets tend to show less elasticity of supply, meaning when demand rises, the supply response takes some time to respond. 

“Demographic data is quite lagged, but it was clear through the first year of the pandemic growth cycle that housing demand across regional Vic was being fuelled by a combination of new residents arriving from Melbourne compounded by fewer people leaving regional Victoria for the capital cities.”

He said he expected the better long-term performance will come from areas within commuting distance of Melbourne and where there is a greater level of economic diversity, such as Geelong and Ballarat

“Housing values across regional Victoria have been more resilient to a slowdown relative to Greater Melbourne,” he told Australian Property Investor Magazine.

The quarterly pace of growth in Melbourne dwelling values peaked at 5.8 per cent over the three months ending April 2021, while across regional Victoria the quarterly pace of growth peaked at the same time (April last year) with a growth rate of 7.1 per cent, however the slowdown has been far less sharp, with the latest three-month period recording a rise of 4.7 per cent,” he said.

The Australian Bureau of Statistics this week reported that Victoria’s regional unemployment rate had dropped to 3.1 per cent in January – the lowest of all the states. The national regional unemployment rate was 4 per cent.

The number of people in jobs in regional areas has risen by more than 88,000, or 13.4 per cent, since November 2014, and the regional unemployment rate has more than halved.

The dramatic fall in regional unemployment in that period is the greatest in the nation and has attracted even more people to the regions.

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