Property Investment Update

It continued to be a whirlwind for Melbourne property investors in 2023. From announcements when it came to land tax and vacancy tax, to continued interest rate rises in (with end in sight mind you), you would have been forgiven for stepping back and just sitting on your hands when it came to your property investment options last year.

With the new year ticking over, a wave of optimising is suddenly sweeping Melbourne’s investment market, with many factors indicating this is indeed time to take the property investment plunge.

The ‘Hot 100’ is back for 2024
For the second year in a row, realestate.com.au releases its ‘Hot 100’ where it looks at the potential boom suburbs across Australia for the next year. The list takes into account a number of factors including affordability, amenities, family appeal, location, investment prospects, gentrification, population growth, demographic change, and infrastructure.

“There are a lot of things that make a suburb ‘hot’, it can be in a desirable location that drives more demand, it can be undergoing gentrification to make it more attractive, it can be relatively affordable to other surrounding suburbs,’ said Cameron Kusher, Director of Economic Research at PropTrack.

For investors, investing in a suburb or area before it explodes is the key to success, which is what makes this list so valuable for your property investment future. Victoria accounted for 20 spots on the list, with some of the notable suburbs including Burwood, Croydon South, Murrumbeena, Thomastown, and Watsonia. These suburbs definitely need to be on your watch list if you’re looking to invest in 2024!

A rate cute will certainly bring investors back to the market

With interest rates reaching a 12-year high in 2023, many investors were forced to sell their properties, while potential investors were bearish about taking the investment plunge. This is understandable; high mortgage repayments and a currently elevated cost of living is a combination that is not overly appealing.

But with many experts predicting rates to be cut as early as the middle of 2024, this should see investors coming back to the market in a big way. Commonwealth Bank is predicting the cash rate to be as low as 3.6% by the end of 2024, which is down from its current high (as of January 2024) of 4.35%. Westpac sees the rate being slightly higher come the end of the year, predicting 3.85%.

Using new land tax legislation to your advantage
Last year, the state government introduced new land tax legislation which officially took effect on January 1st 2024. The new fixed charges on Victorians who own a second home or an investment property will be a flat rate $500 annual tax for properties with a land value between $50,000 and $100,000. Payments will increase to $975 for homes valued between $100,000 and $300,000, while an extra 0.1 per cent of the land value will be applied to properties worth more than $300,000.

While this may seem scary for investors, there is a silver lining. For those who negative gear their investment property, land tax is fully tax deductible, meaning the new land tax legislation is actually beneficial if you do in fact utilise your investment in this way. Some landowners who do not negatively gear their properties may also be able to claim the tax as a deduction through the federal system. Probably a good idea to chat to your accountant about the benefits of claiming the land tax against your investment property

Rental prices and demand are still at a high level

It has been tough for renters across many capital cities over the last two years, especially Sydney and Melbourne, which have seen soaring rental prices and very few options for those needing a place to live.

Experts are predicting rental prices to continue at a high level for the foreseeable future in Melbourne. And while it is a dire situation for renters, new investors coming into the market have enjoyed the benefits of these higher rental returns, which have somewhat offset their higher interest rates and mortgage payments.

Median rental prices in Melbourne saw an $85 per week increase, rising from $465 a week in December 2022 to $550 a week as of December 2023. “Rental markets are still very, very tight across the country, certainly in Melbourne as well; we’re seeing rental vacancy rates of 1.2 per cent,’ said PropTrack economist Angus Moore in a recent article in realestate.com.au “In that environment, it’s hard to find a rental and you’re going to see competition for rentals, which is part of why we’re seeing prices grow as quickly as they are.”