Melbourne buyers need to beware as prices head south

Melbourne property buyers are warned to negotiate carefully if they don’t want to be in negative equity within months of buying property in the coming Spring market.

“Buyers thinking about purchasing in the Melbourne market need to offer $50,000 to $100,000 off the current asking prices in order to avoid property values dropping below their loan amounts in the coming months,” said Debra Beck-Mewing, Chief Property Strategist and Buyers Agent at The Property Frontline.

“I’m particularly worried for first time buyers who are being heavily targeted to buy into this market.  If they don’t negotiate heavily, they will be buying into financial hardship for the foreseeable future, she said.

“Then if they face financial difficulty and need to sell their property, they won’t be able to sell for the price they paid.

The most recent property market results show the Melbourne prices continuing to plummet as property owners sell out due to the restrictive ownership legislation and high taxes introduced by the Victorian Government.

The sell off started during Covid but has now gained momentum and is showing up on property price value charts.  The most recent Core Logic results showed Melbourne down by 0.9%.

“In some suburbs the dip is much more dramatic, and this is a very concerning development,” said Beck-Mewing.

“It’s not only impacting buyers but also property owners across the State, with their property values falling through the floor.

The sell off has gained pace as owners faced the new Victorian land tax regime for the first time. 

“The Victorian State Government adjusted the land tax threshold to $50,000 which means any investor with land values of more than $50,000 is now required to pay annual land tax, and the cost is making holding property in Victoria impossible.

The table below shows the difference between 2023 and 2024 rates.

The increase in tax coupled with higher interest rates and restrictive residential tenancy legislation has prompted investors to sell off their properties, often at discounted prices to ensure they can exit the market as quickly as possible.

What started as a trickle has now turned into a flood, as owners are in a race to the bottom in order to attract buyers.  Now the decline in property values is starting to impact the broader market.

Declining values means constrained finances for everyone in Victoria, as property owners will spend less on discretionary items, leading to impacts on small businesses and also decreases the taxes the Government can collect.

“It will take quite a few years for this to play out, as owners realise they can’t cover the heavy tax burden and more owners decide to sell,” said Beck-Mewing.

“The people who will take the biggest hit will be first time buyers or unsuspecting investors who are only seeing ‘bargains’ – it’s not a buyers market, it’s a pathway to financial hardship.

“This is just the start of a massive downturn for Melbourne prices, so there’s never been a more important time for buyers to be cautious and negotiate well, because if they don’t they’ll be  financially under water within weeks of buying.