How Melbourne’s ‘vacancy tax’ will affect investors

The vacancy tax is different from the land tax, absentee owner surcharge and the federal annual vacancy fee.

It was estimated in April 2018 that there were around 20,000 vacant properties in Melbourne, including both houses and apartments.

“The tax is intended to encourage landowners to make residential properties available for purchase or rent so that Melbourne’s current housing stock is used as efficiently as possible,” the state government highlighted.

Essentially, the government is influencing property economics by affecting the property supply and demand in the capital city.

Vacancy tax and property economics

Propertyology’s Simon Pressley said that it might take 12 months before Melbourne feels the impact of the new legislation.

Nevertheless, 20,000 properties coming into the market will affect both prices and rental rates.

The implementation of vacancy tax following the changes in lending regulations by the Australian Prudential Regulation Authority (APRA) might just be a little too much change within a short time frame, according to the buyer's agent.

He said: “Things have softened a lot. All those levers that the government and the regulatory bodies have pulled [have] had an impact on the market in Sydney and Melbourne, which have considerably slowed down.”

Recently, some lenders have started reducing interest rates to entice investors to come back and purchase more real estate assets.

The Melbourne market is essentially going up and down and left and right at the moment: while it’s great to hold properties there, buying anew or entering the market is not encouraged until everything is stabilised.

“We're not buying in Sydney and Melbourne at the moment because our money is best spent elsewhere, to get a better bank for a buck in terms of investment results,” according to Mr Pressley.

Melbourne property market

Despite the possible negative impact of new legislation, the Melbourne market will not be crashing any time soon, the buyer’s agent said.

It had three months of price decline in the first two quarters of 2018, which proved that it's approaching the end of a cycle, and it is expected to remain flat for years, seeing low growth and yield, but thanks to the capital city's solid economy, the market remains far from any significant crash.

Mr Pressley said: “A solid economy is likely to prevent major price falls. Could property values fall in general? Yes, they could. But crash, as double-digit declines, no. I don't think so.”

“It's quite common that any market, including capital cities, can drop a few per cent once every six or seven years. That's normal. Melbourne and Sydney could do that,” he added.

Melbourne will remain a great market to invest in, it's just not the right moment to jump in.

After all, for the buyer’s agent, the best time to invest is just before a growth cycle commences and not when it’s about to end.

He said: “For anyone out there who can afford to invest today and is motivated to invest, I'd suggest that Sydney and Melbourne ... you would cross those off your list.”

“There will come a time in the future when they'll be back on our list but it's certainly not now,” he concluded.

Tune in to Simon Pressley’s property markets update on The Smart Property Investment Show to know more about the current state of markets across Australia.