Why now is the time to invest in this unloved state, and where to buy - realestate.com.au

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Victoria's property investment prospects remain strong despite prices going backwards and an 'outrageous cash grab' by the state government that has prompted many investors to flee, according to property experts.

The southern state has been maligned over a string of property-related tax reforms, including land tax hikes, rental reforms, and a new 7.5% levy for short-stay rentals like Airbnbs from 2025.

While the changes have prompted some investors to desert Victoria in protest, Adviseable buyer's agent Kate Hill said savvy investors will reap the benefits of buying now, when competition with other investors is less intense.

"Even though the Victorian land tax is a hideous and outrageous cash grab, it's important that people stop demonising Victoria," Ms Hill said.

"No one likes new taxes or levies, but it is illogical to believe that Victoria - which is home to nearly seven million people let's not forget - does not offer a plethora of opportunities for investors now and into the future."

Jump ahead to see the Victorian regions identified as having good long term prospects.

Buyer's agent Kate Hill said Victoria remains a solid place to invest for the long term. Picture: Supplied

It comes as the latest PropTrack Home Price Index showed property prices in both Melbourne and regional Victoria went backwards in April, despite national values reaching a new record high.

PropTrack senior economist Eleanor Creagh said prices in Melbourne remain 3.4% below their March 2022 peak.

"Buyers in Melbourne have consistently enjoyed more choice relative to other markets with the total number of properties listed for sale sitting above the decade average since mid-winter," Ms Creagh said.

"After climbing in February and March, home prices in Melbourne have fallen in April, a stark contrast to the other major capital cities."

Long term fundamentals remain 'positive'

Investors have been selling up in Victoria for several reasons, according to PropTrack director of economic research Cameron Kusher, including higher interest rates and changes to property taxes and tenancy laws.

"We're definitely seeing, relatively speaking, less new lending to investors in Victoria than we're seeing in other states and territories. That does suggest that the bounce we're getting at the national level isn't being reflected in Victoria," he said.

"If you've over-capitalised, you may or may need to sell a property or two.

"But also, the state government has made changes to taxes and laws around tenancy which I think some landlords would look at as being pretty unfavourable."

Melbourne's property market has lagged behind the other major capital cities. Picture: Getty

Mr Kusher said the Victorian reforms may have prompted some investors to consider offloading their asset, and using the profits to invest in another state or asset class.

"I think people in Victoria are realising they don't actually have to invest in Victoria, and have got the choice to invest elsewhere, and there's better investment options at the moment," he added.

Investors have been flocking to Perth, Adelaide and southeast Queensland, where the price of housing is generally cheaper,  Mr Kusher said.

However on Victorian turf, strong demand for rentals is continuing and rent prices are expected to stay high, PropTrack forecast in its March quarterly rental report 2024.

The state's extremely low rental vacancy rate is hovering around 1%, amid strong population growth and a lack of new housing coming on board.

"I think rents are going to continue to rise well above the rate of inflation, so for people renting it's going to get relatively more expensive to be renting," Mr Kusher said.

Given the backdrop, Ms Hill said an exodus of investors from Victoria is likely to result in a "prolonged rental catastrophe" that will push rents higher.

She said the smarter investors will ride out the recent tax changes, understanding the fundamentals of the nation's second most populous state remain "overwhelmingly positive".

Caution for those chasing the wave

According to PropTrack, Perth has been the strongest performing capital city by far with values rising more than 20% in the past year.

But Ms Hill cautioned that too many investors have been piling into Perth and overpaying for inferior dwellings. She said investors are making risky decisions, doing less diligence and "almost buying sight unseen" because they are competing against dozens of offers.

"Perth has just been going completely bonkers for a couple of years. By the time you [buy] and it's been in the media, the bulk of capital growth has already happened."

Perth's property market has outperformed over the past year, with many investors flocking to the state. Picture: Getty

Ms Hill said while Victoria's rental yields may not be as attractive compared to South Australia or Perth, investment is a long game.

Boasting above average population growth, the state continued to be a sound investment spot with solid prospects for cash flow and capital growth, she added.

"Not only are there fewer buyers on the ground, property prices have been subdued over the past year, and the vacancy rate in Melbourne is just one per cent," she pointed out.

"The smartest investors are cherry-picking the best opportunities in Victoria that offer superior upside potential for anyone who is prepared to look past the current rental reform and tax agenda."

Buying opportunities for brave investors

For those looking to swim against the tide, Ms Hill outlined several Victorian regions with strong long-term prospects.

She pointed to Geelong, which is economically strong, growing and has billions splurged on infrastructure.

"Somewhere like Geelong is third in the country of favourite places for Australians to move to. You've got much less competition and all these growth drivers are there, but no one's talking about it," she said.

She said very little capital growth has occurred there in recent years but it's poised to take off.

"It's a buyer's market where you've got more clout when it comes to negotiating a deal as well," she said.

"It's just going to keep going up because the supply of rental properties isn't there."

Ms Hill has also nominated Berwick in Melbourne's south east and Delacomb in Ballarat for their price growth and affordability.

Outer south eastern suburbs such as Cranbourne and Frankston also offered sound investment options.

Melbourne's Frankston, around 40km south east of the city, has been earmarked as an attractive location for investors. Picture: realestate.com.au/buy

In addition, boutique apartments and smaller blocks in well-established areas of inner Melbourne, as well as suburbs in Ballarat, Bendigo, Geelong were worth considering.

She said the best areas in Victoria for investment depended on budget, but locations with above average population growth, a diversity of industries, access to train lines and infrastructure were the best drivers for growth.

Ms Hill was one of several property experts to nominate suburbs across the country in the annual realestate.com.au Hot 100.

National Property Buyers director Antony Bucello said the Victorian investors he has seen offloading their properties have usually already realised their capital gains.

"It depends on the type of property they have, but certainly the land tax increase has impacted on a number of people as well the interest rate rises," he said.

"For some people, rental increases haven't been the same as the expenses they're going to incur, therefore we're definitely seeing a lot of investors sell up."

Some investors have been using their gains to reduce debt or renovate their homes, he said.

While new investors are a "little bit quiet" at the moment and approaching the market with caution, Victoria offers sound investment opportunities, he said.

"I genuinely believe over the long term the capital gains are going to be really good in Victoria. There's lots of capital gains to be realised in Melbourne in particular, in a number of areas," he said.