As house prices fall, Victoria piles on new property taxes

Two new property taxes will be imposed from this month on the state’s struggling property market — already the weakest in the country.

More taxes are set to hit the struggling Melbourne property market. Picture: Vince Caligiuri/Getty Images

Victorian property owners face an uphill battle in 2025 as the state government layers on a raft of new taxes aimed squarely at property investors.

In a move which will bring the ‘pile on’ of state-based property taxes in Victoria to ten separate measures, the Allan government has introduced its controversial vacant residential land tax (including holiday houses) along with a short-stay levy aimed at short-term rentals.

The new taxes kicked off on January 1 and arrive just as Victoria reported the nation’s worst price performance figures for calendar 2024.

Industry forecasters also suggest Victoria will also be among the weakest markets in 2025 as investors steer clear of the state.

Financial advisers and lawyers are grappling with the patchwork of state taxes which are increasingly complex. Property investors are also complaining loudly over the steady escalation of tax costs as a struggling Allan government ratchets up attempts to collect revenue from the property sector.

Victorian Premier Jacinta Allen at the Clean Energy Council & Energy Efficiency Council Clean Economy Jobs Fair in Melbourne. Picture: David Crosling

The state’s congestion levy — which is applied to owners of off-street parking in Melbourne’s CBD and surrounding suburbs — was introduced in 2006 at $400. That tax is now triple what it had been on its introduction, with the highest level coming in at $1690 per year.

Separately, the fire services levy was doubled in the most recent Victorian state budget, which recorded a deficit blow out to $3.6bn.

Long-serving Victorian Labor treasurer Tim Pallas was replaced late last year by Jaclyn Symes.

A client note from DBA lawyers suggests since mid-2000 “state taxes on property have expanded considerably, making the holding and development of property in Victoria complex and less profitable”.

Melbourne recorded the worst annual fall in property prices over calendar 2024, dropping by 3 per cent, while Sydney was up more than 2 per cent and other mainland capitals enjoyed gains of 10 per cent or more. The national average, according to research house CoreLogic was an increase of 4.9 per cent.

For the year ahead, Melbourne may be looking at another drop, and this time it could be sharper. The base case scenario for the city, set out by property researcher SQM, is for a 5 per cent decline over the 12 months to the end of December 2025 — which would mean the city has the worst performance of any Australian metropolitan centres over the two years 2024 and 2025.

As one industry expert warned: “Ultimately, these increases in taxes could reduce revenue inflow, not increase it … if fewer people buy for less money than otherwise (given higher tax traits and reduced demand as investors can buy in other states without these costs).”

So far in 2025 the Victorian property deals which have made headlines reflect the malaise across the state’s market, rather than any early signs of a rebound in housing.

In the suburb of North Melbourne private credit market leader Metrics Credit Partners recently announced it had taken over the development of a $750m residential project after a loan default.

Victoria now has ten property related taxes (see below graph).

Property investors have been holding out for a rate cut which would improve returns and allow some further scope to pay taxes, but the prospects of an RBA cut early this year are now unlikely: ‘While market consensus had shifted towards a 70 per cent probability of a rate cut in February, we don’t see this happening until later in the year,’ VanEck head of investments Russel Chesler suggests.

Originally published as As house prices fall, Victoria piles on new property taxes