The Victorian property market is being strangled by a combination of high taxation and green tape.

It is a situation that concerns property veteran Peter Nicolls, Director of KR Peters Real Estate.

Mr Nicolls said investors are fleeing the property market, selling up and parking their money in shares. He says many are finding it difficult maintain their investments because of the financial crippling combination of property taxes, high interest rates and burdensome compliance requirements.

Mr Nicolls said at least 30 per cent of the housing stock coming on the market at present is investor stock, up from 10 per cent expected in a normal year.

"Definitely investors have decided enough is enough and the pain is exceeding the reward. Many are deciding now is a good time to sell," Mr Nicolls said.

He knows of investors are selling up in Victoria, which has the highest rate of land tax in Australia, and directing their money into property in other states.

"By investing interstate they are minimising their land tax. It makes good business sense," Mr Nicolls explained.

In 2023 the Victorian government lowered the threshold for land tax from $300,00 to $50,000 affecting about 380,000 owners who did not previously pay the tax.

Investors started to receive their land tax bills from February. Some will pass part of the extra cost on to tenants in the form of rent increases.

"Everyone is feeling the pain from investors, to renters and developers.  With the land tax change, rental providers are finding they can't make ends meet. Whereas before they were being fair and reasonable with the rent they charged, they are now finding with taxes, insurance and maintenance checks involved in having a property, they have to treat it like a business."

Mr Nicolls said the tax take is shrinking the number of available rental properties on the market exacerbating the rental shortage.

Another tax weighing down the Victorian property market is the Vacant Residential Land Tax (VRLT). The annual tax, which can be in addition to land tax, applies to residential land unoccupied for more than six months in the previous calendar year. From 1 January 2025, VRLT will apply state-wide. And from 1 January 2026, VRLT will be expanded to include unimproved residential land in metro Melbourne. The government defines unimproved residential land as land where the construction of a residential dwelling has not commenced within five years.

Mr Nicolls said the VRLT changes were forcing some landholders to abandon plans to "build their dream home" and place their asset on the market.

"If your land is worth $1 million, then the VRLT at 1 per cent is $10,000. People are deciding that is too much tax to pay and they would rather sell."

Mr Nicolls said "green tape" and planning issues were frustrating developers and strangling the supply of new land on Melbourne's urban fringe.

"There are lots of planning issues holding up development at the moment from authorities like Melbourne Water, to getting sound barriers approved, heritage overlays and even the availability of road contractors who are getting paid exorbitant amounts working on the government's Big Build projects," explained Mr Nicolls.

" The government isn't moving on Precinct  Structure Plans (PSPs) because they are trying to encourage housing along the suburban rail link, they're focused on that not on the growth areas, which is creating a shortage of land."

Mr Nicolls, who has been in the property industry for 48 years, said he has never know the planning system to be bogged down to the extent it is at present.

To help create momentum and confidence in the Victorian property market, Mr Nicolls advocates removing the planning process from local councils and reducing land tax to bring it in line with what is levied in other states.

He also has little faith that the state government will achieve its ambition to build 1.2 million new homes over the next five years calling the target "hypothetical".

"For that to happen you need all the ingredients: land, materials and trades. Land is scarce, it is very hard to get trades and there has been a shortage of materials."

He said construction costs have skyrocketed 30 per cent in recent years and 7 star energy rating requirements are adding $25,000 to the cost of an average new home.

It all adds up to a grim outlook.

"I'm seeing an exorbitant level of tax, the highest in Australia, and the planning issues all combining to zap confidence. Once confidence goes it takes long time to get it back. "

Mr Nicolls said the recent state budget did nothing for first home buyers. In fact the news that the Victorian Homebuyer Guarantee Scheme would be abolished in 12 months was a blow for those trying to get their foot on the property ladder.

He also had a warning for those who own property in suburbs favoured by wealthy migrants, suburbs like Glen Waverley, Doncaster, Box Hill and Wantirna South. If opposition leader Peter Dutton wins next year's federal election and slashes immigration, prices in those suburbs will be affected.

"If I was in an area that had a lot of overseas buyers I'd be selling today or in the immediate future. If there is a different government in power and there are immigration changes prices will drop," he predicted.