Episode transcript
Parag Dixit
Hey guys, hi. How are you
Julius
good? Parag over you
Parag Dixit
very good. Julius, very good. Good seeing you here. How are you
Mudit
been well, yeah, good to see you, both of you.
Parag Dixit
Good to see all of you. Yeah, you'll be back with our state of investment series. Next state, yes, yeah, we're getting there. One by one, we're getting there,
Mudit
yeah? A lot of analysis. I think we have covered in depth about a lot of states.
Parag Dixit
Yeah, correct, yeah. We covered a lot. We got a lot. I think we we, I think the most important state, or someone, some state, which has always been very critical, that is Victoria has has been there in our radars. And I think a lot of people who are following our podcast have been asking, Okay, when are we going to get Victoria back into the discussion? So here we are today. We with the Victoria in the midst of it, in the middle of war, in the middle of lots of stuff happening in the world, and we're discussing Victoria. Victoria is pretty important for us, as well as a state the country. Always look forward to how Victoria has moved, how Melbourne has moved, and other things have happened. But anyways, Melbourne is, is the contrarian play of 2026 in fact, was in 2025 as well, where every other capital that got rerated, but Melbourne was not, it still sits, I think, undervalued, against historical norms, you know, with widest house price gap to Sydney in over two decades now, yeah, the land tax regime, rate sensitivity that punished investors in 24 is still not baked in. But the population engine, you know, has started, the Metro tunnel, the Western Cape tunnels all opened, but investor Exodus, it's it's still not gone away. It's run its course, but it's still not gone away. We still they are. Investors are still a bit soft in terms of what they want to do in Melbourne. Units are gone good, the yields are good, but the market is still well below its 22 peak. You know, when it was like everything was all about Melbourne, and everybody wanted to invest in Melbourne and all regional Victoria, quite a story, simpler story that not so complicated, selective pockets with good yields, but had a lower land tax exposure because of land prices being lower. So we are still not, is still a bit immune to what's happening, and this, this lifestyle demands, which have, which have really put it up. So we're going to discuss all of this about Victoria today. We're going to discuss about Melbourne, regional Victoria, same format, purchase affordability, Rental Affordability. We'll talk about the outlook for 2026 and what to look forward to in the state. What's the, what's it? What's what's we can do in that, and then obviously the state of investment positioning and how investors can play with Victoria in this year, right? Yep, all right, guys, I think we can get quickly and straight into what we are, what we have come here for. I think we can start with Melbourne, right? So Melbourne the only place which is where buyers really gained ground in 25 is it, right? Contrary and buy or value tribe, what do you think with it? Wow,
Mudit
that's, that's, that's the big question, right? So see what has happened. I think we need to look at how 2025 was, and based on that, what, what will carry forward in this year? Yeah, it's one of the most balanced capital cities when it comes to the value where it is, house prices sit at a median of close to slight, slightly below a million dollars. And median and units are close to 636 4615 ballpark that price range. Last year there was a bit of growth, not very high growth. Houses and units grew. Houses grew by roughly 6% units grew by roughly two, two and a half percent. One of the only states where, I mean, not too many states are have seen that, where houses have outperformed units so sharply. Yeah. Victoria is one of them. Yeah. So that's how 2025 has been mixed market. And that's where we need to see that how the whole the rental, the yields, the cash flow and the capital growth, how do they sustain coming in the coming year?
Parag Dixit
Yeah, absolutely right. So Melbourne has been a mixed market, and Melbourne has somehow, in the last two, three years, it's not been there, where it has been, it has been, always been in the radars of investors, but it's still not been there. Last five year growth is a modest 15% and you look at a Brisbane or a Perth or an Adelaide, it's 80% plus 90% in Perth, right? So very, very different markets altogether in the other states, but I think Melbourne has been a clear leghard In the capital cycles, right?
Julius
Yeah, last five years is only 15% versus when you look at Brisbane, is around 86%
Parag Dixit
Perth and
Julius
Adelaide are close to 18 90%
Parag Dixit
Yeah, correct.
Julius
So when we had seen they have grew by around 18 90% then they have reached up to the median of
Julius
The biggest issue in Melbourne, why it is. Not growing is either the two main concerns the yields for the investors still sitting at around 3.1%
Parag Dixit
unit
Julius
yields are slightly better, which is around 4.8% the supply is still relatively higher, and that is killing the growth, which is not allowing land prices to go up. And then relatively the housing prices are not growing. When you look at the buying affordability for Melbourne, it's around 52 years improved by 1.3 years. That means actually the growth hasn't had happened. That's why price is so cheap, that even the Perth is around 55 years. Now, Melbourne is still at 52 years. That's only capital city which got better in terms of the buying affordability. Yeah, vacancies are slightly higher, like around 2.17% across the state. Yeah. So that's not that great, because when you look at national averages, it's around one to 1.2%
Parag Dixit
Yeah. All right, yeah, yeah. So see, I think Melbourne has suffered from what has happened in terms of what's the market, what's the what, how the houses have been moved, how the yields have been there. Demand, supply has also created a large issue in Melbourne. It's itself. You know, it was the demand recovered, but the interstate migration, I think it took a while to normalize, right? The pandemic really, really messed it up. And once the it got messed up, it didn't come back so quickly. It is becoming not in normal now. It's coming much better now, but it has not been so good. 25 really suffered from that as well. The stock on market was okay. It was point three, 1% but I think it's it's still still low. When you compare it with the other capitals, it's still in the kind of a low supply, kind of a area or a band, which you can call it right, yeah, days on market being lower is that, is that correct? Clearance rates have been 70%
Julius
that's correct. But Melbourne always go into pockets. So there are certain pockets within few councils in Melbourne where we could see extremely high demand for owner occupiers, the investors in between. Before in the interest rate was started to falling, but suddenly, when the interest rate started rising, and then there's lot of land tax, and all these issues come arise. So that's the time when, again, we could see the property prices have stalled for a while. Other than that, when you look at most of the buyers within that segments are very close to a million dollar segment,
Parag Dixit
absolutely right? Yeah, I think below million dollars is, this is the one which is the quickest and the best running segment. Above million dollars is kind of it's struggling right now, and in that place, though, you know it's, it is? It's a very surprising bit, because Melbourne has always been a darling of all investors, owner occupiers, both. It has always been like that. But because of all of these, the inventory is low. Stock level is there's so much of stock available. People are not people are not distress selling, but they are all they're very cautious. You know where they are, their list. New listings are low. It's a very balanced position, but not a very strong position to be in when you compare inventory with versus any other major capital and I think the biggest problem with Melbourne has been the way the whole government regulation and intervention and thing has been, which is really put a dampener on the whole prices out there in Melbourne. Right?
Mudit
No, absolutely right. So when we compare with different other capital cities, so what has happened is that whether it's Perth or Brisbane, Adelaide, all of them in terms of the the price of houses. For example, Melbourne and Sydney were always kind of competing with each other. They were always kind of considered right above the rest in terms of the property prices. But what has happened is that in the last five years, because of the capital, because of the growth in the other capital cities, Sydney has, of course, price have gone way ahead, and including Brisbane, Perth, Adelaide, all of them have caught up with Melbourne, because the property prices there have gone up significantly higher, and Melbourne has not seen that kind of growth. So almost all these capital cities are sitting at a median house price of close to a million dollars now. So Melbourne, while it was way higher property prices, has not seen that growth. One
Parag Dixit
prime example of how mismanaged government regulations can really impact someone, and you can really impact an area in terms of prices, and can you really create a bit of a mess in the whole situation in and that has been Melbourne, right?
Julius
Yeah, that is that is true, because mismanaged government, then basically the you always have a higher rental vacancies, which is not impacting on rental runoff, so rentals are not rising. Yeah, demand and supply always have a lot of gap. There's so much of inventory which is coming up, so the cash flow is not there. That's why investors can't hold it up. Yes, there is owner occupied demand. But since there are a lot of houses still coming up on the market, and then if, because the land prices are not moving, construction cost move, move around 15, 20% right? Whatever you used to buy in 2018 19, if you look at now, the land prices are gone up around 10 to 12% Yeah, yeah. That's why that there is no movement on the entire asset value. That's why the Melbourne is struggling, because no investor pressure for owner occupiers, there are lot of opportunities, because land prices are not moving, so they can go with new houses at the same price, so existing inventory doesn't have that much of pressure in the market.
Parag Dixit
Yeah, correct. So that's why I think it's one way it has been good is what I read for first home buyers, new owner occupiers to come into Melbourne, but eventually, once you occupy a property, you don't find a capital growth in your property. Whether you're an investor or an owner occupier, you're kind of stuck. And people, after two years, three years of finding that their property value is there where it was, whereas other states and other capital cities, people have seen a lot of jump in their property price and have been able to get a better value out of what they've done. But regional Victoria is not what it is, right? Regional Victoria is maybe today, in 25 with what Melbourne used to be, you know, good prices, decent yields, and a good buyer pool, which is still not priced out. You know, still they are affordable. This is an affordable alternative to Melbourne, with good value still available. There a lot of pockets there, which has a great value out of versus what it is there in Melbourne, right. Yeah,
Julius
correct. So in regional Victoria, when we look towards the surrounding of Melbourne, there are lots of significant urban areas where you still have a good opportunities for jobs, good economical indicators, and then still you have a good population growth, good infrastructure around
Parag Dixit
yeah.
Julius
So look at the median prices are very close to $650,000
Parag Dixit
for
Julius
houses, yes. And the units around 444 50 ish,
Parag Dixit
yeah, yeah.
Julius
Houses grew by around 6.1% and unit have moved by around 5.8% in 2025
Parag Dixit
All right, so that's a good movement. So that means that, in fact, both houses and units there have in regional Victoria, have really performed well,
Julius
yes,
Parag Dixit
and they've given a good yield as well, and they've given a good growth as well. And it's broadly, you know, it is, it is tracking the recovery trajectory. It's doing the much better job of recovery versus Melbourne, the original Victoria area. I think a lot of hubs are there, a lot of portions are there. A lot of areas are there which have done good with with good yields and good unit yields and good housing yields and meaningfully better income profile than Melbourne Metro. So it's an overall good scenario for people
Mudit
now, overall, yeah, absolutely, overall better if, and also if we compare with the regional areas of, let's say Western Australia or Queensland. There are a lot of re rating has happened that the prices have the capital growth that those regions have seen. So the region of Victoria is still yet to see that kind of re rating. It is one of rating. It is one of those rare regional areas where that has not happened. So, so it is still more affordable. And of course, somebody's win is somebody's loss. So for somebody, for investors, if, if it is still affordable, it's still a good entry point. Maybe, yeah, that's right. For people who are looking to live in owner occupiers, the prices are low. But then as an investor, you also start you wanted them to see the capital growth. So that's where we need to see where it goes,
Parag Dixit
correct? Absolutely right. As an investor, you want to see, not even an investor, as an owner occupier as well. It's like this, I want to buy cheap, but then I want it to become expensive, but if I'm, if I buy them own rocket fire on an investment, I feel bad when it's not happening to me. I feel bad when I'm wanting to buy expensive, but I feel bad when I have to sell cheap as well. So maybe it's a it's the way everything is, but that's, that's where, I think, where we are stuck in regional Victoria as well. But I think the whole bit of a demand and supply. There is still regional Victoria has still got a lifestyle and migration boom forb, kind of a thing which is coming into from Melbourne. It is coming into regional Victoria. And that's driving a bit in some segments, right in, say, Geelong, you know, Mornington Peninsula, the belarut corridors, they're all doing pretty good. There is that correct,
Julius
correct? So they are actually a surrounding of Melbourne, where, if you drive around hour or hour and a half, and then you can reach up to Geelong with the Ballarat, and then when you go towards the southeast and towards the Mornington Peninsula, yeah. So there is good lifestyle opportunities, employment opportunities are pretty good. Plus, when you look at the infrastructure upgrades, plus all kinds of amenities which are being created surrounding or surrounding of that area are pretty good. So basically, there is good opportunities, good affordability, and then good rental returns as well. That's why we could see there is a little movement into that
Parag Dixit
area. Yeah, correct. And, and the movement has been there because of these factors. Of the it's been an affordable area. It's, you know, remote work. Victoria still commands a lot of remote work. In fact, I think government was trying to bring a policy where they would have a mandatory remote work for a particular period of time. And that remind that actually has kept the. Uh, demand in regional areas going, you know, it has got, it has got more supply than Melbourne and but less competitive conditions. You know, it's not such, such massive competitive conditions versus the other regional area. So it still preserves the value for people who are buyers and people who are sellers, right? Two, speed market. Is that? Right? Is it?
Julius
Yeah, it is. So basically, either you go towards the coastal lifestyle, where you have such a good demand because there is no supply coming
Parag Dixit
up,
Julius
and then you have a inland agriculture related or driven inland councils, where you could see there is little bit of demand because of this agriculture related work, but more demand, which we could see towards the coastal paradises, where towards the Mornington or the Geelong, where we could see a more demand which has been created by an investor as well as owner occupiers,
Parag Dixit
right? Yeah. And I think that's that kind of a demand whole. There's a bit of balance, and there's a bit of a mix across regional areas, and that's more because of the way, the inventory is there. And I think inventory is pretty balanced. It's kept everything in checks, and it's not let things run away their course. And it is still listings are still okay. It's reasonable. It's not. The days of market are still fine. There's still a much under control. So as an as a thing, it brings, for buyers, it's okay, because for buyers, you don't feel that there's too much of competition happening. You're okay, you're you're you're not struggling. You're not having properties too long in the market, and you're not having properties too short in the market. So it's all right, all right. Kind of the scenario where I'm happy that I'm able to get what I want in the time which I wanted to get, but and it gives me a negotiating power as well, right in the regional markets, versus, if I look at a WA, a coincidence, which we're talking there, it's not like that there, they are damn hot. But these are pretty good right now.
Julius
Oh, yeah, it's markets are moderate. It's like, it's like, it's not super hot. Where, in WA, your days of markets are less than a week. So the moment you list property, 100 investors there. And since there is no supply immediately correct, they'll go and offer over here. Yes, there is demand, but there is a supply as well.
Parag Dixit
Yeah,
Julius
it's not over supply, but it's not under supply as well. So basically, when you look at the demand and supply score over there, it would be very close to in between around 58 to 60, which is like moderate, which is
Parag Dixit
like moderate, yeah, but I think the light with the coastal ones still don't have an under supply, right? The coastal ones still are a bit they need a bit more. But within once you leave the coast and you come in land, then you're
Julius
in a lot of supply coming up.
Parag Dixit
There's lots of stuff going there, but some corridors like which are important, Geelong, what? Oh, Geelong, is a good corridor, Ballarat and Bendigo.
Julius
Geelong, Ballarat, Bendigo. Then you go towards the Shepparton, you look at the waranga. They are the they are the good corridors where we could see little moment enterprises, even the lateral valley. It depends on which side of those pockets you go towards, because there are a lot of ups and downs within that, councils as well. Especially, I could see more movement towards the woronga, towards the Shepparton and Bendigo and the Latrobe Valley. Ballarat is still moderate in the supply. Bendigo had moved a lot. Shepparton, waranga have moved a lot. La Trobe Valley moved a lot as well.
Parag Dixit
All right, okay, so in terms of purchases, a lot, a bit of a mixed bag. When you look at whether Melbourne, when you look at whether regional Victoria, if I would want to say, like, if we want to discuss about how it's happening in terms of a Rental Affordability position across Melbourne, I think Melbourne was one place where I think renters, you know, they you take a break or something, you know you you find that okay, landlords are not thrilled. They're not they're not having a great return or something. Whereas for a tenant, I'm fine, tenant, I'm looking okay. And I'm finding that even if I'm converting and buying my own house from being a tenant, it's all right. It's it's kind of similar, similar position. I'm not better off, I'm not worse off. So it's, see, it's kind of an achievable market, where everybody's achieving everything, but nobody's getting
Mudit
anything. That's a good way to put it. So it's one of the most accessible rental market across all the capital cities. The vacancy rates are pretty, pretty high right now, 2% plus compared to other capital cities. The rents have gone up, but very moderate. I mean two, 3% kind of thing, rental increase, which is probably the slowest increase in amongst all capital cities. And that's why Rental Affordability is high for anybody who's looking to rent. The gross yields are compared to other capital cities on the lower side. Of course not comparing with Sydney, but house yields sitting close to 3% unit yields are better close to four and a 5% so overall, if you're looking as an investor last year, if you look at that, then you were better in terms of cash flow management if you were owning a unit compared to a house. So But having said that, then you start comparing with other capital cities and.
Parag Dixit
All that, right, yeah. But I think the biggest concern which I've seen in the Melbourne market has been the vacancy rates. Considering being a capital, it has the highest to 2% plus vacancy rates, and which is not small, which is a lot of vacancy rate to happen, and it's not a and this. Combine it with subdued price growth, you're not in a very happy situation. When you look at a when you look at this in isolation, that okay, I'm looking at a high vacancy rate, which means if I, if somebody leaves, my tenant leaves, then I may be vacant for maybe a month or two or whatever. I don't know that. And even if I get the rent, I'm not getting a great rent out of
Julius
it, the cost of the holding as well, because 2% to more than 2% is average. There are a lot of pockets where we can see vacancies around four and a half percent
Parag Dixit
as well.
Julius
And that's the places in the northern or the Western corridor where you see lot of homeland packages and new properties are coming up.
Julius
that is actually giving lot of pressure, because properties not are not going on the rain for around one and a half to two months,
Parag Dixit
yeah.
Julius
So foreign investors two months properties vacant, plus you have land tax, plus yields are pretty poor. There is no rental growth. So it's it's a worse situation for the investors,
Parag Dixit
Yeah, but see if I have two weeks of rent not coming in out of 52 weeks, or 52 weeks, which I have, say, eight weeks of rent not coming in out of 52 weeks, I'm already at close to 10% of the whole year's income gone vacancy, and which is a lot of impact. And that's not a small impact for anyone to have. And I think it's, it's that's that's caused me that the rental demand has really brought it down because, because I was already suffering from this Melbourne was already suffering from the migration loss, which had happened, people moved out, and that's what it's and now when and I have that, there is so much of a vacancy rate, which is higher, I am, I don't the demand is softer. So I don't really find that the supply is going to improve in any way whatsoever. I don't find anything though. You know, I think the only saving grace for Melbourne, even this year 25 was the strong student and the International renters, which had come in, which really maybe hung on to the unit demand, because they that's what they prefer. And Melbourne has always been stronger in terms of supply of units, but that's the only saving grace which kept the mental demand on. Otherwise it was, it was in a tough, tough situation when Melbourne was there for for the whole year, right? And that's why the there's not too much of a growth. Which happened in rental inventory has been is pretty lot of inventory still available, right? It's still the inventory is rising more in more and more inventories coming in. Listings are recovering, in fact, but not a good scenario,
Mudit
in fact. Out of all the capital cities, again, the build to rent that is increased a lot more in Melbourne, so not so common in other capital cities. You would hear that, but that's Melbourne specific vacant supply of what's coming up in terms of the rental and lot of the other capitals, right?
Parag Dixit
But that's also maybe getting the rental supply up. That's one of the factors which must have got this rental supply into the market. And that's allowed people to come in, and that's maybe kept the vacancy rates high as well, and that's also kept the rents moderate right but, but on the other side, if I'm if I'm a tenant, it gives me a good, balanced market when I want to, when I want to rent it, it's not going to be having too much of an impact on my income. I think my rent versus my income ratio is best managed in Melbourne City itself, right? But regional Victoria was not like this, right? Regional Victoria is a bit different,
Julius
right? Regional Victoria you still have a tight vacancies. So most of the places, your vacancies are very close to one to 1.2% plus. When you look at the rental growth, it's more than five to 6% in last year. So plus the yields are more than four and a half percent in certain pockets. So basically, in regional Victoria, when you the impact, which you have seen towards the Metro Melbourne, regional Victoria, certain pockets, the impact was bit different, because inventory is low, yields are better, and then your rental vacancies are lower as well.
Parag Dixit
Yeah, and I think it's a more accessible rental market than Melbourne, right? If we compare it within Victoria, if we compare it, it's a more accessible rental market with the income profiles are also good as well in most of the areas in regional Victoria, people's income profile is fine, and that's why you get a good yield, four and 4% plus yield and close to 5% four and four nine, 4.95% in apartments, pretty, pretty good, right? Better than Melbourne in terms of houses and in terms of the apartments one as well.
Mudit
Correct? Absolutely. And so if you look at because of better rental yields, the total return on the property is in last year has been close to 10 to 11% although, if it, if you look at again, compare with other capital cities, other other areas, then that was higher, other states, close to 1415, 16% There, but it is lower than that. But still, when you compare it with Melbourne, you still see a better return from a growth plus rental yield perspective,
Parag Dixit
correct? And that's and I think that's because of the overflow which came in from Melbourne, for people which came in here, the people who came in for lifestyle and all that. So it's still added to the benefit of regional Victoria area, correct, yeah. And that's why there's kept the demand right, steady, rather than a huge jump, but it's kept a bit of a steady demand, which came through from these areas, right? Geelong and, you know, Ballarat on all those areas which you're talking about,
Julius
correct, yeah. So we could see net internal migration a lot from not exactly, a lot, but there's a moderate net internal migration towards the surrounding of Melbourne.
Julius
lots of people are moving towards Geelong. Lots of people from Metro Melbourne are moving towards Ballarat. Then lot of owner occupiers upgrading themselves towards the Mornington
Julius
Then a fair bit of people are moving towards the waranga. There are a lot of opportunities towards the Bendigo in towards in education sector. So even students are moving there as well. Yeah, towards the Shepparton waranga. We could see lot of health related infrastructure. That's why we could see more demand which has been created over there. Yeah. So we could see a moderate amount of people are moving across the regional town centers because of the good economical indicators. They're good jobs.
Parag Dixit
They're good jobs. Yeah, that's that's fine. And I think the except for the areas where, you know, like Mornington and the coast, the coast there, where you still have a lot of Airbnb going around, that was still a lot of impact there. Otherwise, rent was pretty much okay. There was not too much of a pressure in these areas, right? And pretty balanced kind of inventory is available in the market. Not too much of a vacancy rate, though it's still higher than your WA is in Queensland, of the regional areas of those states. But still it's okay. It's more it's moderate.
Julius
It's not always intense, like wa Queensland or South Australia, where you actually don't have any houses to rent.
Parag Dixit
Yeah, correct.
Julius
It's available there. It's not too much of competition, but it's not bad either.
Parag Dixit
Yeah, it's, there is more shortage, but it's not freely available as good. I think it's in that band where you kind of everybody is happy, happy, okay, but tighter, I think the the monitor side and all, it's still bit tighter. But the other areas mostly are fine with what's happening there. Most of the regional Victoria is fine. But I think the biggest impact which will come in this year will be the the vacant land tax, which is going to start coming. I think that started happening already from late 25 and 26 it's going to move in one bit further. So that should push a lot of vacant investment properties into the rental market, right? That will increase the supply. Even more, will
Mudit
increase the supply, because six months, if you've not constructed, then if you see that, oh, that's they're going to be an extra tax. Now it's going to push more people, especially because the because if you're if you're not deep pockets, if you're not able to kind of cash flow, is because in the current climate where the interest rates are a bit high, so the ability to hold on to a land is also goes down that ways, right? So that will push more supply in the market,
Parag Dixit
yeah, I think. And, but that's, that's all that's been the problem with the Victoria in all totality, put together that the it already had a land tax issue. The other states are now coming to the land tax issues, but it's now has another tax above the land tax, which is on vacant lands, which is available, that if you've not leased out for six months, then you're going to have a tax implication. And I think 26 will see, when we talk of the what's going to happen in 2026 we'll be talking about the impact of that tax, which is going to come there, because that's going to really put pressure on the investors who are looking to come into Victoria, or wanted to do into Victoria. That's another thing to really look at and see, and what's, what is the issue, but, but if I would lower to, okay, let's talk of 2026 when we're looking at the economic. Bit about Victoria, the inflation. I think inflation has a big impact on there. The primary drivers of inflation in Victoria, similar to other places, have been housing, but I think rents have also come become a bit of a factor coming here, construction cost. It has still a good home in line industry. And I think construction cost has also added to the inflation in in Victoria. So that's that's something which is there, it's not looking like Victoria will come back into the mid 2000 by mid 2028 it will come back within the target point. Two, 3% odd is there so And anyways, the war situation, and whatever is happening in terms of government and the government subsidies which are coming in, it's a big risk which is now coming into the inflation. Bit the cost, the construction cost,
Julius
it doesn't,
Parag Dixit
it doesn't look like we are having a great positive impact on the Victorian market, at least in this and what do you think about the interest rate scenario now? What do you think is going to be, what's going to happen in Victoria with the impact of what's happening
Mudit
interest rates because, because, especially because of the war, the inflation we are seeing, and then because of which couple of interest rate increases have already happened this year, and it is expected more raise prices will happen. One more probably will be announced in a few weeks from now. And then, there's more expected in the year. So interest rates are expected to go up which, which directly puts more pressure on Victorian market wealth. The gross yields are not very high, right? So the gap between your rental income and the cost is going to increase. So unless, unless you have a way of holding the properties for longer this year, is going to be a little tougher from a from an interest rate and the rental yield perspective,
Parag Dixit
it is going to be a bit tougher from that. And I think that's why we seeing that there is the confidence index, the consumer confidence is, I think, at the lowest as of right now, and more, because of the rate rises which are going to come in, because the global uncertainty, because of what is happening in terms of turmoil, or everywhere. We are seeing that we are finding that the capital, that the whole the whole scenario about capital investment, and these rules which are going to chain about capital tax and gains tax and all that is really impacting people from there. And I think the Sydney and the Melbourne market are most exposed to whatever happens in terms of the rate of interest changes. If you look at a six, six and a half, 7% kind of a rate of interest which most owner, occupier or investors would be paying right now, it's a it's a bit of a large impact, which is there, and especially Melbourne market, with all those being great, sensitive being been so exposed to rates and so exposed to so many of other taxes, has a straight direct impact about what's going to happen and,
Mudit
yeah, especially because when the medium price, median price is sitting at a million dollars, yeah, then there are a lot of properties where which are above that price, right? Yeah. If you the moment you go to 1.2 1.3 $1.5 million kind of properties in Melbourne, the impact is straight away there. Yeah, it's a direct impact on what your take home income is and how much you're paying to the
Parag Dixit
banks. And the surprising part is, despite that, prices have not really moved up here, it is still the most leveraged when it comes to having a rate of interest impact. And that's that's why only and only when rate cuts resume in maybe 2027 late or 2028 that's where we are looking at Melbourne to start having a bit of a recovery in terms of prices, or in terms of any kind for growth. But again, and it's always, it's always been the government play, which has happened there, even in the if you look at when the you look at the Victorian budget, or we look at any of these things, they're still not talking of a very high employment rate to grow through in 26 they're still looking at a high unemployment rate, about 4.7 4.8% which is which used to be historically low. But they are not really looking at anything better to come through here and the even the budget talks about higher unemployment rate, which will be there in Victoria, in this in this year, right?
Mudit
Yeah. So coupled with higher unemployment rate, coupled with the inflation, higher interest rates, doesn't it doesn't create a very, very rosy picture that ways,
Parag Dixit
yeah, I think the high infrastructure costs, the land tax, I think one of the most aggressive land tax state regime is there in Victoria, right? And then this, I think this elections as well, in 2016 the state, right? All of that has a severe impact on Victoria, on what's going to happen and how things are going to be there, right, in Victoria, in this, in this coming year,
Julius
Yes, correct. And then when you look at the population forecast for Victoria, so it's around 1.7% per annum from 2005 25 to 26 which is the strongest volume addition to any state. When you compare the net interstate outflow. It's moderate to 2024 and 25 because during covid, it used to happen a lot, but now it's moderate. And then Melbourne is expected to add more amount of population till 2030
Parag Dixit
I think that means that, though structurally, we should be okay in terms of the population coming in, the demand coming in.
Parag Dixit
because there is not so much of a the population is still there, but still there is so much of a supply that it's not materially impacting what is going to happen in with respect to rates, or with respect to anything else. I think it's all getting absorbed pretty much easily within the whole belt in its. Self, right there, right
Julius
Yeah. Especially with the supply perspective. I was looking at few numbers. So if it is the way the current supply is coming up versus the amount of population, which has been expected to grow till 2032
Parag Dixit
Yeah,
Julius
and the way the current construction industry is going on Melbourne, to become supply neutral, the population has to be population growth has to be extraordinary, and then the construction industry has to be slowing down, till then the by 2032 if this scenario happens, then only Melbourne will start becoming a supply neutral.
Parag Dixit
All right,
Julius
that much amount of supply which is in line, and then which is already in pipeline, which is coming in,
Parag Dixit
absolutely right? But, yeah, no, that's, that's, that's right. So that's a lot of road to cover, right? Yes. And then, when you complicate it with a structural decline in home ownership rate, because the investors are not coming and owner occupiers are just taking over from the investor. So there is a, structurally, the number of properties which are now available as as not growing anymore. This is the land tax regime which is very, very, very strong there now, with the vacant land tax coming in as well, within, within the within, across Victoria, then you've got, I think we've got an Emergency Services Fund as well, right? Which is also a large levy which is starting for even investment properties now, from 2026 from July 2026, is coming there as well. So that's another impact which is going to come into the area. Then you have some areas with congestion levies coming in, which is, which is coming into there. So parking is, there's a levy which is coming in there for a lot of areas in in Victoria. So these are significant thing, you know, that's bringing in a kind of a two speed Victoria, you know, one, where you can, you find good infrastructure is there, but there's a lot of cost there. And there is when there is not too much of an infrastructure, but still, you know, the you can just go there because you can afford it, but it doesn't have all the other stuff. And I think one of the this is one of the key reasons that individual mom and dad investors are not able to come and hence, the bill to rent sector has kind of taken it over. They're doing a lot of stuff in terms of adding more and more stock into those areas, in the in Victoria, right?
Mudit
You're absolutely right. So when you talk about this, these levies and the taxes, if you look at in isolation, then each one of them may not be big enough amount, yeah. But if there are 23456, of these, they keep getting adding up. When they add up, then it becomes a substantial amount which is going out from your pocket. So as an investor, you start thinking that this tax, this tax, the vacant land tax, then the the higher tax, then stamp duty being high, gross yield is not so high, plus all these levies adding up. So I mean, where does it go? Where
Parag Dixit
does it go? Yeah. So if you, if you look at the land tax, and if you look at the all these levies which are coming in, and I think there are mandatory inspection once, and then you have to have gas fitting. Then you have to have these you've got a lot of inspections to be done as well. You're finding that an average investor pays off at least eight to 10 weeks of rent in these costs itself on a normal basis. Now, if you're paying off in these costs, and then you have interest which is, which is at the peak right now interest rates, which is, again, a large cost to you, then you've got council rates, and then you've got insurance to buy for the property. So in an overall basis, the cash flow negativity is too large for someone, and that that bits, that bit creates an impact on me. And I may be an owner occupier, and I may say, Okay, I'm an owner occupier, so I it doesn't impact me. I think that okay, if borrowing capacity is not constrained, and I'm getting the benefit of a first home buyer scheme, I'm still hauled right here, but I'm not still so good, because I'm finding my capital gains is not there, so my property is not rising there. So
Mudit
I think the only saving grace there being that the property prices. Some property prices in certain areas and certain maybe units or somewhere, are not too high. So because of which, although there's the overall cash flow is negative, but because if the prop, if you're able to hold on to a property which is not too high value, then you can, because not even if your pockets are not very deep, you can hold it for longer period. That's probably the only saving grace. But then, if it is not growing in capital much, then where does it take you? So that would
Julius
take
Parag Dixit
you correct? Yeah, that's right. So I for me if to enter it into it, because my Renting Versus Buying calculation is working well, is a good entry point. But if it doesn't take me anywhere, I'm not I'm not holistically happy. I may be happy for that transaction, but holistically, I may find that it doesn't work out for me, though regional Victoria is still all right, okay, there is some good price point, but not everybody wants to go and live in regional Victoria, right? But as an as an investor, if I start looking at this as an investor, I find that my gap of about three. Three and a half percent yields and a six and a half percent rate of interest, with a good 3% plus gap between this and I'm not even taking the other cost, is a huge gap, right? Three, three and a half percent gap straight on this, and then your other cost is something which was an investor. It's like we were talking it's a tough gig to cover up, how much money can you put in for your property? And then if there's a negative gearing changes which come in, then Victoria is in for a lot, lot of problem for investors. But I think units have still been a saving trace in Melbourne. But otherwise it's, it's, it's not a great scenario which is happening in that three
Julius
and a half percent is on $700,000 purchase value,
Parag Dixit
yeah.
Julius
That means if property prices have to go up to around, for an example, 800 $900,000 margin,
Parag Dixit
yeah,
Julius
if rentals are not growing significantly, then that yield will be very close to two and a half percent,
Parag Dixit
right? Which is tough,
Julius
which is tough, which
Parag Dixit
is tough, which is a Sydney yield, right now, correct? 1.5 million. Yeah, correct, yeah, correct.
Julius
And in Melbourne, the biggest issue is the vacancies are higher. More number of properties are coming into market for the rentals. Yeah, which is not resulting into you'll have a good rental growth. So in a case, if suppose property prices have to rise, the rental has to grow first, or else it's not sustainable for any investor. It's not essential for any investor. So if you look at this, okay, let's assume these rental conditions are there in 2026 Do you think that these rental conditions will sustain investors in 26 highly unlikely, because of the fact that in 2026 originally we were expected interest rate to go down, but now we are expecting three more hikes, yeah. And rental to rise, you need to have a lot of pressure on the properties, or it will run over. Turnover has to be higher, yeah, the situation is otherwise, yeah. So in this case, it will be highly unlikely that investor will enjoy this period, yeah, and it will create them a lot of pressure. That's where we were talking that it's a contrarian
Parag Dixit
capital growth city. You know you thinking that, okay, you're speculating, or maybe you're hoping that there will be a growth that, how low can it go? Right? It's, it's such a it's, it's a tenant friendly city, country, city, state, sorry, but it is not the investment. Is not the prime motto there. You're just sitting there hoping that I'm in there one fine day it will improve and I'll get a great capital growth coming out of there.
Mudit
I think you're absolutely right, and that's what is a lot of investors are the hypothesis is it has, last five years, other states have gone up by 80% capital growth. This has gone up only by 15% and that is why it should grow. I think that is one way of thinking, but the other way is like looking at the fundamentals of supply and demand and migration, and what will make it grow, the taxation and the taxation the yes, that's a big one, right? So I think just because it has not gone up, it should go in itself. Is not the entire perspective. You need to keep it no more. Keep into mind the fundamentals, why it should grow, how is the demand, and basically your taxation and your demand, supply, structural things and how the market is today, in terms of the interest rates, where they are going, the macroeconomic factors, all that combined will give you a better idea of where it
Julius
should the moment they introduce that rental cap, where you can't increase the rent about the certain band a certain percentage. That's done. Yeah,
Parag Dixit
absolutely right. These holding costs, these kinds of costs, which are going to keep on coming in, are really driving the investors away. For me, it's tough to hold on, as it is right now, to a property. And what's going to happen if my holding cost keeps on increasing, then I'm into a there will be a point where everyone will say, Okay, thank you very much. I've had enough, and maybe I'll come back in two years. But right now, this is not the place for me. But also then, if we look at it like this, okay, if we look at all of these things coming in. What do you think is a purchase outlook for Melbourne in 2026 so if I'm looking at a purchase position, where do I see me? I know that I've got a 15% growth, which I already had. We've spoken about that we've already seen that the apartments and houses have grown 5% in Melbourne and about all that stuff. But what do you think? Where does it go? Melbourne still is right, less than about a 1% away from the March peak. It's below that. It's not yet recovered, right? So what do you think is going to happen there? 2026
Julius
will be mixed, and it's bit tough because of the fact that we all know that interest rates are changing, holding capacities are going to be big issue for a lot of investors, the rentals are not improving, even though there is a good renting affordability within the population, because the rentals are significantly lower than the entire country, but still, because of the extremely high supply of rental properties, rentals are not rising. So 2026 will be in a case if suppose. Pockets where there is extremely high owner occupied demand, and any of the investor who bought the property over there probably you could witness little bit of growth in those pockets. But generally, there are locations where the rental yields are lower, plus there is excessive supply towards the Western and the Northern Corridor, or towards a few pockets of the south eastern corridor. I believe they will be hardly moment into the property prices,
Parag Dixit
all right, yeah, even though there may be a little bit of an investor demand coming back, but I think it's more speculative demand, rather than India in there. And and I think 26 with the elections coming in, and I'm very sure some there will be a more focus on land tax and maybe tightening of rental regulation, and you who knows, some more of stand duty reforms, like you know you had those apartments, you can get stamp duty waivers and all that. That's going to be a very, very relevant point for all the investors to see. Owner occupies are pretty well off the pretty much in a good position there in Victoria if you wanted to buy, but not in terms of capital growth, but at least you can buy. But as an investor, you you will have to see what's going to be there. And then you start comparing as well. Right in 26 okay, I'm seeing whether should I go on into Brisbane, or should I go into Perth, or should I go into Melbourne, or should I go into Sydney? And then when I see that, okay, I can say, Okay, I've got other buyer choices as a choice. I've got choices in in the other places here. So do I really want to go there or not? And that's why buyers may have a good occupy buyer may have a good position to be in, but as an investor, I may be into A into an into an issue, and compounded with what's happening here, compounded with expiring schemes and supports of first home buyers, the stamp duty ones and all that, it's going to be a bit tight, right? And what do you think is the cash flow position is going to be in 26 minutes? How does it look like?
Mudit
See cash flow like we said, that there's a good gap of both houses and units. There's a gap, and the gap is going to increase this year further because of the increase in the interest rates. So cash flow is going to get worse overall because of the increase in the interest rate, even if the rentals increase a little bit. But because of the cap on rental prices, which is expected there, the cash flow situation is going to be more and more negative and and the only good thing is that if you're, if you're able to get a property for less than 500k then you're the cash flow is not so much negative. It will be under control. You can probably hold on because of that, all
Parag Dixit
right. And in terms of capital growth, what do you think, Julius, where do you think we are looking at in Melbourne, it
Julius
will be too slow this year. Probably we might go negative in most of the places, because of the fact that none of the see when we look at the boom cycle or a pressure on the property prices. Investor has a major role in property price appreciation in Melbourne, we could see there is a good demand for owner occupiers, because those who can't afford properties in 500 or $600,000 range. Yes, you have two options. Either you go towards the good regional town center, where you see there is a good growth on the property because of the demand and supply gap. So with so in Melbourne is it's affordable. But there are still options available across the country, which where the investor can get into and make more money than Melbourne. So at this stage, in 2026 we don't see any improvement into the property prices,
Parag Dixit
all right here. And when you look at regional Victoria, what do you think is it's a, it's a, it's a nicer, quite a place than Victorian thing, but less exciting, but again, less risky as well, right? So how do you think is going to be there in regional Victoria? In this way,
Julius
the regional Victoria from last one and a half years, we could see there is a price movement. So especially when you look towards the regional Victorian towards the waranga or Bendigo shepaton, I think waranga achieved around 16% in last year. A
Parag Dixit
shepherd
Julius
is in around 12% Bendigo is in double digit. So and at this stage, there is enough pressure on a property prices,
Parag Dixit
demand
Julius
and supply still has bit of gap. So that's why we could see a little bit of movement in those regional town centers in Ballarat especially, there is this supply which is coming up in a case if suppose there is a rental gap, and if rentals are not moving, so because of the supply constraint, it might be little slower. Ballarat and Geelong, because they are the bigger region, but especially when you go towards waranga Right, due to a strong population growth in Albury, waranga Region, due to that Inland Rail Network, plus good health infrastructure, it is driving more population towards Wodonga, and it is creating more impact towards the property prices, because demand has already been there. There is no supply. Similarly in Bendigo, also due to extraordinary government funding across the health commercial which is around $2 billion Which is good or enough for that particular region. That's why there's a good demand indicators. Same thing in Shepparton as well.
Parag Dixit
Shepparton, yeah, again, similar to Wodonga, this also a lot of health and infrastructure bit which is coming there in Shepparton, it's still a mining area. It's not a mine, sorry, agricultural area which is there, and lot of stuff is happening on that and that, all energy and all that is still contributing to the good employment growth and good long term employment growth, which is coming into that area in Shepparton as well, right? And similarly, Melbourne is okay, okay. Melbourne may not be looking at a re rating or something unless in the year 2026 and without Melbourne, I don't think so Victoria is going to be having a great future there. There's a good value which is preserved here, but I think it's still there's a there's a lot of gap, you know, this lot of there's a lot of gap. And I think it will take 12 to 18 months, maybe even more, for stuff to happen in that area. In totality, in what's happening in this way, we'd be looking at a lot of issues which are coming through in this this bit as well. Now looking at rental, okay, we talked about purchase. What do you think is going to be in Melbourne in terms of rentals in the area?
Julius
At this stage in Melbourne, there are enough vacancies and the enough properties for the rental if you look at 25 the vacancies are more than 2%
Parag Dixit
Yeah,
Julius
it is going to be same in 2026 there might be little changes, because a lot of investors are selling properties and converting into owner occupiers. And if they are not more homes coming up in a market, then you might see little bit of surge in our enterprises, but the vacancies is still gonna be about one and a half percent. So yeah,
Parag Dixit
close, close
Julius
to
Julius
2% Yeah,
Parag Dixit
yeah. But the only hope is more, the more and more education investment which is going there in that segment is bringing the students back. I think before covid, students were the biggest driver of apartment demand. And I think once they are coming back, their apartment demand is going to come back into it. There's this I can that's, that's going to stop the migration as well. So I think net migration will start becoming more positive for Victoria in this year. But overall, I think the demand is still quite far away from where it should have
Mudit
been, right? Yeah, overall, demand should go up. But how far, how fast those becomes? I mean, no, no very, very strong or driving reasons that it should pick up by a large margin. I think that's, that's where it,
Parag Dixit
yeah, that's why. That's why, like Julius was saying, it will still have a much larger vacancy rate, one when it, when you compare it with all the other capital cities, right? It is still have cash flow negative issues, which are going to be, still be compounded and and as we said that it good 3% plus negative in houses and all that. It's going to continue. So it's going to be, it's still have a kind of an okay, okay, rental growth in apartments and houses, but not very great situation there. So unless you're really looking at a really contrarian view in Melbourne in terms of rents as well, right? And regional Victoria, what have you seen in regional Victoria in terms of rental outlook for 26
Julius
the rental demand is higher, especially in those all the regional, Victorian region,
Parag Dixit
yeah,
Julius
so and the rentals are rising, so 2026 is going to be steady. It's not like you'll have a lot of vacancies in the market, because there's still enough population growth, plus enough demand for properties because of this, all infrastructure development and then economical indicators which are
Parag Dixit
happening there.
Julius
So 2026 for the regional Victoria will be a stable
Parag Dixit
it'd be stable. And again, it unlike Melbourne, it doesn't even have the bill to rent activity which is happening there, so it's only mom and dad investors which are going to contribute. And that's, I think it's, it's, it's, that's not too many. So it's going to keep a moderate growth in the in the rental growth and rental yield. So it's going to be still remaining where it is, right?
Julius
Yeah,
Parag Dixit
it's maybe not exciting, but not not boring as well, to invest there in regional Victoria that will keep you there. Okay, okay, so I think we've got a good discussion at our hand. So if I would love to, if I would like to say, if I would say, if you want to summarize Melbourne, right, what do you think should be? Few key takeaways, Julius from here, about Melbourne, in terms of purchasing, in terms of renting, what is, what does it look like in 2026
Julius
Okay, in purchase in 2026 it depends on what is your objective for an investment.
Parag Dixit
Yeah, if
Julius
it is the first property where you would like to build upon equity immediately, and then that's not the reason where you
Parag Dixit
can
Julius
go. You should invest because of the fact that it will take some time, unless your cash flow position will change, Melbourne will not move in good capital value. And if you are first time investors, and for next 2436 months, if you're not gaining anything from your property, then you're just stopping your growth. So 2026 Melbourne. Will grow in a pocket a little bit, where, if you have a highest affordability to hold your properties because of deep pockets, then yes, you can get into a Melbourne, but for normal moment or investor, first time, first time investors are there, essentially towards SMSF, where the holding cost is extremely
Parag Dixit
higher. Yeah,
Julius
that's not the great place to get in. That's
Parag Dixit
not a great place to get into that, and rental wise as well, right? So, because of Bill to rent coming in, and because of not much of an investor activity which is happening there in Melbourne, we are looking at a pretty moderate year for investors to be there in what is there? It's contrary. And that's the that's the point. That's the word for it, speculative, not a great word to use, but that's the kind of outlook which we're looking at 26 to continue. So if you, if you wanting to say, okay, just imagine Brisbane is one and a half times of where Melbourne is today. So even if it covers 20% of that, I made my money, right? That's the way, if you're looking at investing, that's the place to invest in Melbourne. But if you that's not the way you're looking at investing and cash flow is something which really puts you under stress, then it's not a place where you will love to go and invest into there. So we may have some good movement in apartments a little bit there, but mostly the houses are not looking at having too much of there. But again, apartments don't have a capital growth so you're kind of stuck cash flow. You can look at an apartment, but not capital growth, but capital growth, if you look at a house, we can't have cash flow coming in from there. So you're in a you're in between two issues, right? Yes,
Mudit
that's, that's, that's Melbourne market, both from demand and supply fronts, doesn't hold a lot of promise going on in 26 and the overall, the macroeconomic climate and the tax regime, they're not helping. Either
Parag Dixit
they're not helping either, we've spoken at length about what's happening in terms of taxation there. But regional Victoria, I believe that's more positive, right? Yes, a bit more positive. Not as positive as what regional Queensland or a regional W or a regional NSW shows, but regional Victoria is still more positive, right? Julius, what do you say?
Julius
Yeah, in regional Victoria, we could see, still a moment in a property prices. So for an example, if you are a first time investor, and then if you'd like to get into affordable segment of investing, where you already have properties everywhere, and then you want to diversify your portfolio, then, rather than getting into a Melbourne, the digital Victoria will be better choice. Yeah, at this stage, with current demand and supply gap and good rental income in the yields, pockets of regional Victoria will
Parag Dixit
grow, pockets of luxury will grow, and still has a good rental yields are going to come in. Into this year, you still have a good Melbourne recovery, which pushes Victoria recovers, regional Victoria recovery as well. Still have a lower risk in there, still have good income for profilers who live there, for people who live there. So you on an overall basis, you find that Okay, it looks like I'm in a better position when, if I'm wanting to invest into regional Victoria, especially in the areas and regions which you've spoken about, like Bendigo and Ballarat and Wodonga and Shepperton and in a bit. So these are still looking at a bit better right in they
Julius
are still in a buying window. They are not as bad as what you look into western side of the northern side of the Melbourne, where, as we discussed, the gap between your rentals and your repayments extremely higher where it's affordable. So there you can still manage to have in between four to four and half percent in the yield in affordable pricing. Yeah,
Parag Dixit
correct. So yeah, like you rightly said, maybe if I were to just maybe make a few last comments on this, if I am, if I am looking at a great cash flow as an option, then maybe I will have to see whether I have better choices in the other states versus investing in Melbourne. But regional Victoria is still there in some pockets where I can invest in to get as an investor, but on an overall basis, if I'm if I'm coming here, and if I have a confident view, I look pretty nice if I'm coming here. And if I'm a first time investor, it's not coming nice if I'm a first if I'm a first home buyer, if I'm an owner occupier, it's a good price point to enter, because my rent versus my buy ratio is pretty nice. Okay, it's kind of similar when I'm looking at this. So a mixed bag, kind of a state where if I would love to have, if I would have loved to have stability as an owner, works for me, but as an investor, I need to really, really think through about what we are doing, and look at the other states as well, whether I find a better attraction there versus I'm from what I'm finding it in Victoria, right?
Mudit
Absolutely, absolutely.
Parag Dixit
That's a very good discussion, guys. I think we've had a good nail down on what's happening in Victoria, and how does it look like for the in terms of the investment bit for or in terms of owner occupied bit for there. Thank you so much for joining in. I think it had a lovely conversation today.
Mudit
Oh, thanks, Parag, yeah, nice to talk to you. Thank
Parag Dixit
you guys. Thank you. Thank you.