Investor Momentum Builds Nationwide—Victoria Remains the Outlier

Investor activity in Australia's property market has surged to levels not seen in nearly a decade, signaling a renewed confidence among seasoned and emerging property investors. However, Victoria stands apart from this national upswing, exhibiting a markedly different trend that warrants scrutiny.

Over the past 18 months, investor lending has rebounded strongly, following a subdued period triggered by the Reserve Bank’s interest rate hikes beginning in mid-2022. According to PropTrack Senior Economist Angus Moore, this resurgence reflects a strategic response to tightening rental markets across the country. “Investor activity is now approaching decade-high levels, driven by the acute shortage of rental stock and escalating rental yields,” Moore noted.

From an investment standpoint, the fundamentals are compelling. Rental vacancy rates are at critically low levels nationwide, and rental prices continue to rise, creating an environment that is ripe for yield-focused investors. While owner-occupier demand has also increased, it is investor lending that is leading the charge, particularly in smaller states where investor participation is nearing record highs.

This renewed investor confidence is occurring despite broader economic headwinds, underscoring the resilience and appeal of property as a long-term asset class. Yet, Victoria remains a notable exception to this trend.

Victoria’s Divergence: A Market in Transition

Investor engagement in Victoria has not mirrored the national resurgence. Data from the Victorian Residential Tenancies Bond Authority reveals a decline in active rental bonds, suggesting a contraction in the rental pool. This is contributing to increased rental pressure, even as Melbourne’s rental growth remains more moderate compared to other capitals.

Several factors may be influencing this divergence. Victoria’s recent land tax reforms have introduced additional costs for property investors, potentially dampening enthusiasm.

Moreover, Melbourne’s rental affordability—currently the most favorable among Australian capitals—may paradoxically be reducing the urgency for investors to enter the market.

Approximately 30% of property listings in Victoria are investor-owned, a figure comparable to Sydney but higher than other states.

However, these properties are not being replenished by new investor purchases at the same rate, creating a supply imbalance that could have longer-term implications for rental availability and pricing.

Looking Ahead: Opportunity on the Horizon

Despite current hesitations, the Victorian market may be poised for a turnaround. With interest rates expected to ease and Melbourne’s median home prices now sitting below those of Adelaide and Brisbane, the value proposition for investors is strengthening.

“As interest rates continue to fall and Melbourne’s relative affordability improves, we anticipate a potential pivot in investor sentiment,” Moore said. For strategic investors, this could represent a window of opportunity to enter a market that has been underweighted in recent quarters.

In summary, while investor momentum is building across Australia, Victoria presents a unique case. For property investors with a long-term perspective, understanding the nuances of this market—its policy landscape, rental dynamics, and pricing trends—will be crucial in identifying the optimal entry point and maximizing returns.