Can I still make money investing in property in Victoria?
In recent years, the Victorian property market has seen its share of highs and lows, leaving many prospective investors wondering: "Can I still make money investing in property in Victoria?" The short answer is yes, but it’s essential to understand the current landscape and emerging trends to make informed decisions. Particularly as there are so many micro markets in Victoria for both residential and commercial property.Take note: the below overview is specifically for investors rather than owner-occupiers, who will have a different approach, although certainly a lot of the below can be considered.Understanding the Current Market
The Victorian property market, particularly in Melbourne, has shown resilience despite global economic uncertainties. While the market experienced a slight dip over the past 12 months, there has been a bounce back and property values in many areas have still surpassed pre-pandemic levels. Key Areas to Watch
Regional Victoria
Growth Potential: Regional areas like Geelong, Ballarat, and Bendigo have seen substantial growth due to increased remote work flexibility. These areas offer more affordable entry points compared to Melbourne and strong economic growth and diversity on infrastructure spend.Infrastructure Developments. Ongoing infrastructure projects, such as improved transport links and community facilities, are making these regions more attractive to both residents and investors.Melbourne's Suburbs.
Outer Suburbs: Suburbs on the fringes of Melbourne, like Werribee, Cranbourne, and Sunbury, are growing rapidly. They offer more affordable housing options and are benefiting from significant urban development and new amenities.Residential-Inner City: Established suburbs like Richmond, Carlton, and Fitzroy continue to be desirable due to their proximity to the CBD, cultural amenities, and lifestyle appeal. Although these areas come with a higher price tag, the potential for steady capital growth remains strong.Commercial property-Infill areas: Strong sales and yields can be found in the high-demand, lower-supply areas of Altona north, Thomastown, Airport West, Epping and Coburg North.View recent examples across the states for commercial sales and net yields.
Investment Strategies
Long-Term Hold
Capital Growth. Properties in high-demand areas generally appreciate over time. Investing with a long-term perspective can yield substantial returns, especially as Victoria continues to grow economically and demographically. This is tru for both Residential and Commercial property. On average - area and asset class dependant, anticipate a growth of about 6%. Research for specific areas is a must.Capital growth and increasing population continues to make Victoria a desirable investment choice. Properties close to universities, hospitals, and major employment hubs and transport hubs are particularly advantageous. Whether residential or commercial property is the right option for you comes down to your finance position and long-term strategy.Cash Flow:
Residential - Rental Income: Steady rental demand ensures lower vacancy rates in key areas. However, you need to consider the taxes associated with Residential income and with a net yield average of around 2.2% it might be a strain on cash flow in a higher-interest environment.This is where commercial property often outperforms residential property in Victoria. On average and asset dependant, anticipate around 4.5%-5% net return (not inc land tax) with average capital growth of about 6% (and in some A grade areas 10+% over the past few years).Taxes
This requires a separate blog, in general, and we’ll keep it at a high level, if you’re investing in property consider:Stamp duty payable: Changes to commercial property as of July 1. In Regional Vic you may be eligible for a 50% exemption on certain commercial property.Land Tax. This applies to both residential and commercial property. With commercial property however, depending on the type of lease you establish with your tenant, you may incorporate land tax to be payable by the tenant (simply stating it’s possible although pros and cons need to be considered - and include your accountant in the discussion)Risks to Consider
Market Volatility
Economic Factors. Economic downturns, changes in interest rates, and shifts in government policy can impact property values and rental yields. Staying informed and adaptable is key. This is a very general statement - and to make it more topical anticipate that with a change, particularly a drop in interest rate - there’s likely an increase in buying and as a result, an increase in the price sold.Supply and Demand.
Overdevelopment in certain areas can lead to an oversupply of properties, which can drive down prices and rental income. Conduct thorough market research to identify areas with balanced supply and demand. This is true for both Residential and Commercial property.Management Challenges
Tenant Issues. Property management can be time-consuming and sometimes challenging. Engaging a reliable property management company can help mitigate these issues.Vacancy periods: Anticipate an average of 4 weeks vacancy in Residential, despite a heated market like we’re in - you must factor that into your projections. There are generally higher vacancy periods in commercial. Certainly factors you can incorporate to mitigate that - but in general and asset/area dependant you may see a few months of vacancy (hence the higher net rental returns)Maintenance Costs. Unexpected repairs and ongoing maintenance can eat into profits. Setting aside a contingency fund can help manage these expenses. This is particularly true of residential property. Commercial properties are less so as your big items are structural and roof replacement. Here it’s important to have a building report as part of due diligence.In short:
Investing in property in Victoria remains a viable and potentially lucrative option. By focusing on growth areas, employing smart investment strategies, and staying aware of the market dynamics, you can navigate the complexities and seize opportunities for profit. Whether you’re a seasoned investor or a newcomer, Victoria’s diverse and dynamic property market offers a wealth of opportunities to build and grow your investment portfolio.We are seeing an increase in enquiry from investors selling their residential properties and moving into commercial properties. We source and acquire commercial properties nationwide to get the best result for client requirements.If you're ready to explore the opportunities in Victoria's property market, reach out to us for an initial 15-minute discovery call.