Is it still worth owning a holiday home on the Mornington Peninsula?

Holiday-home owners and investors are leaving the Mornington Peninsula in droves in part due to higher land taxes, with property prices coming off the boil in the beachside market.

The rolling three-month change in median home values has edged lower since February, CoreLogic data has revealed, after the state’s land tax increases came into effect at the start of the year. The number of listings in the area has increased by 14.4 per cent in the past 12 months.

The Mornington Peninsula’s median home value is down 10.5 per cent – or $101,107 – since the market peak of $960,964 in March 2022.

Increased land tax bills, rising costs associated with owning a second property and a post-pandemic slump have softened the beachside market’s red-hot house prices clocked during the pandemic, experts say.

CoreLogic head of research Eliza Owen said the Mornington Peninsula market had become more stable since the peak of COVID, when prices rose to a record high, with property values now flattening.

“The Mornington Peninsula reflects a trend that we’ve seen across a lot of regional centres that were popular through the pandemic period, and they’re now following an adjustment in a much more kind of normalised cycle,” Owen said.

Mornington Peninsula house prices have flattened since the COVID peak.Credit: iStock

“Buying and selling activity was kind of a frenzy through 2021 ... now selling conditions are a little bit weaker, so not only are we seeing a lower clearance rate, but we’re starting to gradually see that auction activity taper off as well.”

Licensed estate agent and auctioneer at Buxton Mornington Peninsula Clayton Smith said the holiday-home market had shrunk dramatically since 2020, with rising costs pushing the dream of owning a second home further out of reach.

“The percentage of people purchasing holiday homes two to four years ago made up probably almost 80 per cent of our sales. That may account for some 15 to 20 per cent now,” Smith said.

“It’s just not as appealing ... the real cost of holding a second home in Victoria has tripled in the last two years,” he said.

“If you’re buying a holiday home for $3 million, you’re already contributing about $170,000 in stamp duty straight away and then on top of that, a fairly onerous land tax ... the land tax has been a tipping point, I think, for a lot of people.”

Smith said while the median house price on the Mornington Peninsula had softened, he was seeing a higher than average number of listings for sale.

“It’s sad because some of them are generational holiday homes. Families over the years have worked hard, saved hard, bought a home, and now they’re looking at a cost of $1000 to $1500 a month, just for the privilege of having a second home, and that’s without doing any maintenance, that’s just land tax rates and insurance,” he said.

Smith said that regardless of whether second homes were rented out via a short stay accommodation platform like Airbnb or left vacant throughout the year, owners were being hit with taxes many can’t afford.

Clearance rates have returned to a pre-pandemic level on the Mornington Peninsula. Credit: Justin McManus

PEXA chief economist Julie Toth said changes to land tax earlier this year had adversely affected areas like the Mornington Peninsula, with homeowners and investors alike hit with extra costs.

“We are hearing anecdotally of people getting bills for several thousand dollars that they’re not expecting, and it may be for an older home that has been in the family for a long time, and they haven’t had to pay that before,” Toth said.

“When property cycles turn, we do typically see the first turning points in areas with high numbers of holiday homes and second homes,” she said.

“Even if you’re lucky enough to have a second property, you may not have that kind of money available to pay this additional bill and if you can’t qualify for an exemption, then it would be a reason to consider either renting it out or selling it.”

Second homes are exempt from vacant residential land tax if the property is occupied by the owner as a holiday home for at least four weeks in a calendar year, according to the State Revenue Office website.

Toth added that many investors were looking interstate to avoid being slugged with Victoria’s land tax.

Peninsula Sotheby’s International Realty managing director Rob Curtain said while holiday-home owners were selling up, the local market remained strong with an influx of permanent residents moving to the coast.

“Plus people that are either being impacted by higher interest rates or land tax,” Curtain said. “People are now deciding that [a weekend holiday home] is a very expensive item in their portfolio to maintain if they’re not using it ... it’s not just the land tax, it’s the cost of owning and maintaining it.”

Curtain agreed the Mornington Peninsula was a more stable market following the volatility of house prices and record demand during the pandemic.