Why property investors will keep selling out of Melbourne in 2025

Victoria’s Premier, Jacinta Allan. Picture: Aaron Francis

Investment property sales in Victoria have been running about one-third higher than in other states following the state government’s move to a higher tax regime.

New research – carried out before the state introduced two more new property taxes on January 1 – found that property investors in the state were moving money out of the market as new taxes changed the numbers for property investment.

On average about 6 per cent of property investors across Australia will sell on any given year, but PropTrack research established the portion of investors selling in Victoria is now 9 per cent.

“We see that pattern extending into 2025, “ says Paul Ryan, senior economist at REA’s PropTrack. (REA is owned by News Corp, publisher of The Australian.)

Ryan estimates that about 5000 additional investors have sold out of Victoria since the state unleashed the first of a series of new taxes 18 months ago.

He also says there has been increased investor selling across all states as a generation of investors move to cash out before retirement, but “there has been a statistically significant increase in the number of investment properties being sold in Victoria”.

Industry data shows Victoria is now the worst state for investors on a range of measures – it was the only state where prices went backwards in 2024, when house prices dropped by 3 per cent. Sales by property investors were concentrated in the inner-city areas such as Docklands.

In terms of investment signals, it has the highest level of property sales coupled with the lowest levels of investment lending among the main markets.

Similarly, Victoria is recording a much higher level of distressed property sales than rival markets. Figures from SQM research recently showed the state has led the nation with a 5.6 per cent increase for October, well up on the national average increase of 3.3 per cent.

Meanwhile, industry forecasts expect the state to follow the drop in 2024 with a potential decline of up to 5 per cent in 2025.

“There is clearly a set of investors who are doing their numbers across Victoria and making the assumption that there is very little more upside to be gained from their property holdings,” Ryan suggests, ”though fortunately there is still a healthy market for listing in the state.”

Investors have been exiting the Victorian market off the back of new taxes and an escalation of costs relating to existing taxes, such as the congestion levy which has risen from $400 a year to $1690 a year since its introduction.

The Victorian government commenced a new round of property taxes in May 2023 with a reduction in the threshold for land tax payments. In January the Allan government moved again, kicking off a controversial vacant residential tax (including holiday homes) and a short stay levy. The two new taxes bring the number of separate property taxes in the state to 10.

As investors quit the market in significant numbers there is some evidence that conditions have improved for owner occupiers as prices are softer and competition has been reduced at auction.

However, PropTrack warns “while current conditions for first-home buyers appears promising, lower investor activity and construction may lead to dwelling shortages and higher prices and rents over the longer term”.

The state most likely to benefit from investors quitting Victoria is South Australia, where there has been strong investor interest in areas such as Barossa Valley, Yorke Peninsula and Mid North.

As investors continue to hold out for a rate cut – which may come mid-year – there has also been a decline in rental increases nationwide which had powered investment property markets.

CoreLogic suggests that rents rose by around 4.8 per cent in the year to December compared to much higher figures of 8 per cent in 2023 and 10 per cent in 2025.