Interesting for: Seller, Buyer, Rental Provider, Renter, Investor
It’s been an undoubtedly topsy turvy ride for Melbourne property investors over the last couple of years. High rental demands have seen prices shoot up reaping excellent returns, however an increase in land tax and higher interest rates have placed an added burden for those with investment portfolios.
There has been a significant shift though in sentiment in the investing market in Melbourne to begin 2025, with an RBA rates cut the beginning of what will likely be a return for investors to the city and suburbs.
What does a rates cut mean for investors?
In February, the Reserve Bank of Australia cut the cash rate by 25 points from 4.35% to 4.1%, the first rates cut the country has seen in 4 years. But what exactly are the benefits for investors?
A steadier and better cash flow for investors is one of the obvious advantages, with lower bank repayments welcome relief. Investors will also still be receiving the same rental income which sits at an all-time high. While one rate cut might only result in a few more dollars in investors pocket each week, predicted additional cuts will have these dollar adding up to substantial savings.
A rates cut might also increase the borrowing capacity for investors who were previously capped at a certain number. The ability to take out a higher loan means there is more choice when it comes to the investment property investors may desire to purchase.
REIV urges state government to reform current property tax laws
The Real Estate Institute of Victoria (REIV), the state’s peak real estate representative body, has urged the state government to implement tax property reforms in the hope of boosting the state’s current housing supply.
One of the main reforms REIV put in their budget proposal to the Allan government in March was land tax concessions, which is one of the main reasons Victoria has seen a trend of long-term investors leaving the market. Another of the other major reform pushes is encouraging long-term leases of over five years, which is a rental model that is seen in many overseas markets.
“If the Victorian Government is to succeed in fulfilling its critical mandate of improving the state’s housing supply, better enabling property sector investment is paramount,” said REIV Chief Executive Officer Kelly Ryan in an article in Elite Agent in March. “A growing issue our members are seeing play out across the sector is rising costs and complex regulatory obligations causing rental providers to withdraw their properties from the long-term rental market,” she said.
REA’s Hot 100 List is back!
For the third year running, REA ended last year with their annual Hot 100 suburbs list, with experts nominating suburbs across Australia they see having short to medium-term price growth based on a number of factors. The list takes into account affordability, amenities, family appeal, location, investment prospects, gentrification, population growth, demographic change, and infrastructure.
There were 17 Victorian suburbs to make the list, with a total of 13 suburbs in Melbourne. Some of the suburbs on the list include Blackburn South, Coburg, Cranbourne, Croydon, Pakenham, Reservoir, Spotswood, and St Kilda East.
Coburg was one of the suburbs on the ‘Hot 100’ that will truly stand out to investors. “Coburg offers relatively affordable housing options compared to nearby suburbs like Brunswick and Preston, appealing to budget-conscious buyers,” said Matthew Scafidi, REBBA Victorian representative who nominated the suburb for the list. “The suburb has a strong rental market and is experiencing ongoing demand, making it a good investment opportunity.”
A silver living as Melbourne hits record rental prices
Melbourne recorded all-time high rental prices, up 4.5% over the last twelve months. Prices rose $25 per week in this time, with the typical unit in Melbourne costing renters $575 per week.
“It’s still very much a landlord’s market,” said Dr Nicola Powell, Chief of research and economics at Domain. While high rental prices are not great news for tenants, these soaring prices coupled with dropping interest rates is good news for investors who have held onto their properties during a downturn in the market.
It’s not all doom and gloom for tenants though. Melbourne still remains relatively affordable compared to the rest of Australia when it comes to median rental prices, with Hobart (sitting at $570 per week) the only cheaper option for renters. Melbourne’s house rental price has also remained relatively stable, only growing $10 per week to $580 per week over the last 12 months, making it a more palatable option for those looking to rent.
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