The disconnect between supply and demand has been the main driver of restoration of the property prices in Victoria despite the rate hikes.

THE APPETITE OF BUYERS FOR VICTORIAN RESIDENTIAL PROPERTIES REMAINED ROBUST despite the expected slow- down in demand with the tightening trend of the Reserve Bank of Australia, which has resulted in the lifting of borrowing rates.

Salvest Finance managing director Anthony Ferraro said despite expectations of a decline, demand has consistently outstripped supply, particularly in blue-chip areas close to infrastructure and transportation hubs.

“These areas are where there is still an appetite for owners, buyers, and investors to purchase,” he told Your Investment Property Magazine.

Prime factors influencing Victoria’s property market

Mr Ferrero said in the current state of Victoria’s property market, there is no incentive to buy for investors, citing several factors affecting the attractiveness of Victoria as a place to invest.

One of the factors is the new flat-rate tax — Victorians with second homes or investment properties will pay a new flat-rate tax of up to $975, on top of another levy on the value of their land. This will take effect next year.

“This ‘temporary’ measure will last the next 10 years as part of the government’s plan to address its COVID debt,” he said.

The hike trend in interest rates will also be a significant influence on where the Victorian market will go.

“Research reveals changes to interest rates take between one and two years to fully impact the market — with so many rate hikes in a short timeframe, we expect that we are close to the rate hike cycle end,” Mr Ferraro said.

“However, the impact from previous rate rises will be felt well into the remaining months of the year.”

Meanwhile, rental rates have been escalating rapidly over the past year on the back of limited supply and surging migration.

“Reduced supply is impacted by fewer investor purchases and heightened selling from investors,” Mr Ferraro said.

“The return to capital cities has seen rental demand shift from the regional areas that were so popular during the early part of the pandemic.”

Mr Ferraro said this could further drive rents higher over the coming months.

There was relief when the planned rental caps were dismissed by the National Cabinet in August.

In July, the Victorian government was planning to limit rental increases to just one in every two years, a proposal that was met with criticism.

Mr Ferraro said the rental caps could have discouraged many investors and developers from investing in Victoria.

“It could have gotten worse, as no developer will be able to develop, as their yields are compressed,” he said.

“Rental investment is yield driven — when you reduce the yield, you simply reduce the investment appetite.”  

Your Investment Property Magazine : October 2023.

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