Victoria’s tax grab puts Melbourne property market on its knees

Melbourne’s sinking property market is trapping new borrowers as Victoria becomes the worst state in Australia for mortgage ­arrears.

Melbourne’s sinking property market is trapping new borrowers as Victoria becomes the worst state in Australia for mortgage ­arrears.

Home prices have been falling for months in Melbourne, and the city is now clearly entering the next phase of a downturn as mortgage holders facing softer values fall behind in payment ­obligations. While many states report solid price activity, Melbourne’s property market has ­reversed, with prices falling over the last year.

Investors who have been exiting Victoria in large numbers have blamed high rates and a string of new state-based property taxes for the city becoming the softest market in the nation.

Now Melbourne has taken the unwanted prize as the city with the worst so-called “mortgage ­delinquency” numbers where borrowers are more than 30 days late on repayments. Moreover, the city dominates the black spots in the delinquency tables, hosting four suburbs in the top five worst districts nationwide for mortgage arrears.

The Moody’s numbers put the Melbourne delinquency rate at 2.47 per cent – considerably above the national average of 2 per cent. The best numbers in the country are in the ACT with 1.18 per cent – Canberra has historically had the best figures in the national market. Melbourne takes its title as the nationwide black spot for mortgage arrears from Perth.

The Moody’s figures – which show delinquencies on the rise in every city as interest rates remain unchanged – suggest that a wave of recent buyers in Melbourne could now face the prospect of negative equity where their mortgage is larger than the value of their home. Property industry forecasts for Melbourne continue to be the weakest in the nation.

Bank Of Queensland chief economist Peter Munckton has forecast the Victorian capital will finish as the only capital with a negative outcome for the calendar year 2024 with a total drop for stand-alone houses of minus 3 per cent. In contrast, the nationwide average is forecast as 9 per cent, with Perth winning the prize and capturing an outstanding 23 per cent lift in values. More recently, Melbourne has become the bargain-basement among state capitals with an unprecedented move where Perth along with Adelaide, Brisbane and Sydney all have higher average dwelling values.

Ironically, Victoria is still the fastest-growing state. Melbourne is on target to overtake Sydney as the largest city by population, with long-term estimates suggesting the city will hit 10.3 million people by 2051.

According to Stuart Wemyss of ProSolution Private Clients, Melbourne has shown a negative real growth of 2.4 per cent per annum over four years which means, in real terms, Melbourne property is almost 10 per cent cheaper than it was four years ago.

Wemyss suggests: “With Victorian property investors now paying the highest land tax in the national market, Wemyss has estimated that, on the basis of a property worth $500,000, a Melbourne investor pays $1950 annually.’

The Reserve Bank assessed nationwide loan arrears back in July when it observed: “Overall, highly leveraged borrowers have been most likely to fall into arrears since 2022, consistent with their generally higher arrears rates and greater vulnerability to challenging economic conditions. We assess that financial stability risks remain contained as these borrowers represent a relatively small share of total housing lending and very few loans are ­estimated to be in negative equity, where the loan amount exceeds the property resale value.”

Originally published as Victoria’s tax grab puts Melbourne property market on its knees