The Melbourne property market has been somewhat subdued in recent years, lagging behind the growth seen in other Australian capital cities like Sydney and Brisbane. However, with the Victorian Government yesterday signalling a potential reduction in stamp duty for new, off-the-plan property buyers, a significant boost to the market may be just around the corner.
The government estimates this change will cut the stamp duty of buyers of a new $620,000 apartment down to just $4000, a saving of $28,000. By reducing this financial burden, the government aims to make buying more accessible, particularly for first-home buyers and investors. But what does this mean for Melbourne, and why should property buyers and investors act sooner rather than later?
A Much-Needed Boost for the Market
The prospect of lower stamp duty could inject renewed energy into Melbourne’s property sector. Over the last few years, Melbourne’s market has been flat, while Sydney and Brisbane has seen substantial price increases. Melbourne is currently Australia’s largest city however only the 5th most expensive city in Australia trailing nearly every other capital city. This policy shift has the potential to level the playing field, making Melbourne a more attractive option for both local and international buyers.
Melbourne is, after all, Australia’s second-largest city and a cultural and educational hub, with strong population growth projected over the next decade. Reduced stamp duty could make investing in Melbourne’s property market, particularly in city apartments and townhouses, a more enticing proposition. The window of opportunity might be short, as once demand surges, property prices are likely to follow suit, leaving those who waited paying a premium.
Why Now is the Time to Consider Investing
Given that other capital cities have already experienced their growth spurts, Melbourne is now positioned as the “next big thing” in the Australian property market. Investors who recognize this opportunity early could see substantial returns in the long term.
For those looking at city apartments or townhouses, the potential for rental income, coupled with lower buying costs, strengthens Melbourne’s appeal. Properties closer to the city centre, universities, transport and employment hubs are likely to benefit the most. These areas have historically shown solid growth in value and are positioned to outperform as demand returns.
But What Are the Risks?
While the proposed reduction in stamp duty could lead to a spike in demand, it’s important to consider the potential risks involved.
- Short-Term Price Surge: If demand outpaces supply, we could see a sudden rise in property prices. Investors who wait too long may find themselves paying significantly more for the same property just months down the line.
- Policy Uncertainty: Government policies can change quickly. While stamp duty reductions are currently on the table, there’s no guarantee they will materialize exactly as planned. A delay or change in the legislation could cause uncertainty and create short-term volatility in the market.
- Interest Rate Environment: As we’ve seen with rising interest rates globally, affordability could remain an issue for some buyers, despite the stamp duty cut. For investors, this means balancing the short-term cost of higher interest rates against the long-term benefits of capital growth.
- Developer’s Financial Strength: Some developers are already struggling with highly volatile construction prices. An uplift in sales may encourage developers to commence presales before they fully understand their development’s costs and feasibility so buyers should still be cautious.
- Foreign Buyers: It is not yet clear if foreign buyers will be eligible for the scheme.
- Roll out: The legislation is not yet before parliament, however, Premier Jacinta Allen is expected to provide more detail this week.
The Takeaway
A reduction in stamp duty could act as a catalyst for the Melbourne property market, pushing it out of its current slump and back into growth territory. Investors who seize the opportunity early, especially in the city apartment and townhouse market, could benefit from both lower initial costs and higher capital gains over time.
However, as with any investment, it’s important to weigh the potential risks and ensure all properties within your portfolio are complementing your overall investment strategy. Keeping a close eye on the evolving policy and market conditions will help savvy buyers navigate this potential turning point effectively.
National Property Advisory often takes a contrarian investment approach, seeking out properties that we believe are undervalued. We are currently very bullish about the Melbourne property market for a variety of reasons. Although some of the highest Stamp Duty rates in the country combined with a high interest rate environment has seen Melbourne fail to maintain its strong investment reputation since the pandemic. With inflation now significantly lower than its peak, lock-downs well behind us, and now a significant reduction of the price of entry, we believe Melbourne in now ripe for a resurgence. For more information, call us now on 1300 017 192 and speak to one of our expert advisors, or book a consultation online using the link below.
