Victoria’s rental properties swung from a $702m collective profit to a $2.53bn loss in just two years as investor holding costs surged.
Victoria faces what property leaders warn could be the nation’s biggest blow from the Albanese government’s move to restrict negative gearing to new builds.
Latest Australian Taxation Office data reveals the state was Australia’s negative-gearing capital ahead of the budget, with Victorian rental properties collectively $2.53bn in the red.
The state had swung from a $702m collective profit in 2021-22 to a $2.53bn loss just two years later as higher interest costs transformed the economics of holding investment property.
RELATED: Melb singer songwriter lists $16m home
The Block’s crazy Melb asylum gamble revealed
Iconic Melb film house heads for $2.9m+ sale
The $3.2bn reversal was the sharpest of any state, with Victoria recording the nation’s highest ratio of interest deductions for property investments to gross rental income.
Seven of Australia’s 10 postcodes home to investors recording the highest average annual rental losses were in Victoria.
Investors living in Williams Landing topped the nation at an average $10,294 loss, followed by Fraser Rise at $10,054, Lynbrook at $9526 and Wyndham Vale at $9357.
From July 1, 2027, negative gearing against wages will be limited to eligible new builds. Investments held before the May 12, 2026 announcement are grandfathered.
14 Harper St, Melton South, for sale from $490,000-$539,000. Investors in postcode 3338 averaged an $8868 annual rental loss.
90 Anniversary Ave, Wyndham Vale, could cost $795,000-$840,000. Investors in postcode 3024 averaged a $9357 annual rental loss.
Buyers of established investment homes after that date can still offset losses against residential-property income and carry excess losses forward, including against future residential-property capital gains, but cannot deduct them against wages.
The federal government says the change is designed to redirect investment towards new housing supply, with more than 80 per cent of new investor lending going into existing homes.
REIV chief executive Toby Balazs says Victoria has become a less attractive place for investors to buy and hold rental properties. Picture: Supplied.
Real Estate Institute of Victoria chief executive Toby Balazs said the data showed the cost of holding investment property had been disproportionately challenging in Victoria for some time.
“Unfortunately, it is yet another indication that Victoria is a less attractive place for people to buy and hold investment properties,” Mr Balazs said.
He said subdued property values could preserve some appeal for investors chasing long-term capital growth, but generating a competitive yield while meeting holding costs had become increasingly difficult.
Mr Balazs warned that in more recent years investment capital had increasingly favoured other states, and that if this continued tenants would face higher rents, less choice and greater pressure.
“There’s going to be greater attractiveness in other states for those looking to invest in property,” he said.
“And that’s going to mean higher rents, less choice and more pressure on a rental market that’s already experiencing such low vacancy rates.”
Williams Landing was Australia’s biggest landlord loss postcode, with resident investors recording an average $10,294 annual net rental loss.
One western Melbourne tradesman is already walking away from an investment he had planned to keep until retirement.
The investor, who asked not to be named because he was embarrassed about selling, bought the three-bedroom property in 2021 for between $600,000 and $630,000 using savings and equity from his family home.
At the time it rented for between $390 and $420 a week and ultra-low interest rates made the holding costs manageable.
Rent has since climbed to between $500 and $520 a week, but with between $470,000 and $500,000 owing, he said interest, rates, insurance, maintenance and management costs were leaving his family between $800 and $1200 a month out of pocket.
He and his wife had repeatedly dipped into household savings before deciding to put the property on the market.
“I didn’t buy it to flip it,” he said.
Williams Landing topped Australia for average annual rental losses among resident landlords, at $10,294 an investor.
“I thought I’d have it until I retired. But you can only keep putting money into something for so long before you have to make a decision.”
He said the hardest part was potentially affecting tenants the couple had grown close to.
“My wife and I f —king love our tenants, we love to support people,” he said.
Interest deductions in Victoria were equivalent to about 62c for every $1 of gross rent reported in 2023-24, leaving 38c before other deductible costs including rates, insurance, maintenance and property management.
Zara Lend director and mortgage broker Stephanie Jordan says investors are re-running their finances as higher holding costs squeeze household budgets. Picture: Supplied.
Zara Lend director Stephanie Jordan said investors were returning to brokers to rerun their finances as higher holding costs tested household budgets.
“They’re looking at their repayments, their cashflow and their borrowing position and asking whether they can continue to comfortably hold the property,” Ms Jordan said.
“For some, refinancing is part of that conversation. For others, they’re starting to ask whether selling makes more sense.”
She said negative gearing could soften an eventual tax bill without removing the immediate pain of funding a shortfall.
“A tax outcome at the end of the year is very different from the amount of money actually leaving your bank account every week,” she said.
Property Investors Council of Australia chair Ben Kingsley says some long-term Victorian investors are already cashing out or looking interstate. Picture: Supplied
Property Investors Council of Australia chair Ben Kingsley said policymakers should not assume affected investors would simply redirect their money into new builds.
“The assumption that investors will simply move from established homes into new builds is too simplistic,” Mr Kingsley said.
“Investors are driven by total return, not by government incentives alone.
“If the numbers on a new property don’t stack up, some will simply take their money elsewhere.”
11 Second Ave, Hoppers Crossing, is listed for $775,000-$825,000. Investors in postcode 3029 averaged a $9168 annual rental loss.
Mr Kingsley said some long-term Victorian investors were already cashing out, while others were considering interstate markets or different asset classes.
“My assessment is that Victoria has effectively cooked its investment market,” he said.
“We need a reset in confidence because capital does not have to stay here. Investors can vote with their feet and put their money somewhere else.”
Sign up to the Herald Sun Weekly Real Estate Update. Click here to get the latest Victorian property market news delivered direct to your inbox.
MORE: ‘Sucking farts’: Block star’s furious outburst
The bizarre local feature that adds $237k to home values
Victorian budget faces $3bn stamp duty black hole amid home pain
