Domestic rental stock in Victoria is taking a massive hit as landlords put properties on the market and new investors avoid the state for more favourable market conditions elsewhere in Australia.

The trend comes as no surprise to KR Peters Director Peter Nicolls who says the costs and obligations levied on landlords in Victoria means many are reaching crisis point.

Earlier this month the Herald Sun reported that the Labor government is set to charge rental providers a higher rate under its new levy to fund Victoria's emergency services.

It is the latest hit to rental providers' balance sheets.

The Victorian Government has also introduced a new land tax regime to help pay the state's debt, introduced strict minimum rental property standards and policies that many believe are tenant-friendly at the expense of landlords.

The HIA recently released a report which showed that $373,000, or 43 per cent, of the cost of a new house and land package in Melbourne is comprised of government taxes, regulatory costs and charges.

When it comes to apartments, $236,000 or 32 per cent of the cost of new apartment in Melbourne is government taxes, regulatory costs and charges.

"Rental providers cannot keep up with all the additional new taxes," says Mr Nicolls.

"With all these increased costs rental providers will abandon investment properties which will create a mass rental shortage."

Jatinder Singh, an experienced investor who owns multiple properties, utilises the services of' KR Peters' property management division to manage his investment portfolio.

Together with his wife, Mr Singh began investing in real estate in 2016, steadily acquiring properties annually until pausing their purchases in 2022.

He agrees that escalating property taxes and increasing compliance requirements have made it challenging for investors to retain properties, thereby impacting the affordability and availability of rentals.

"When I started investing after building equity in my own home, conditions were far more favourable — the market was stable, inflation was low, and taxes were manageable,” Mr Singh explained.

“Today, higher taxes and levies, especially on vacant land, discourage both investors and developers, ultimately reducing the rental supply."

He agrees with concerns that these factors will adversely impact supply and demand, limiting the number of properties available in the market.

Mr Singh built his family home in Berwick in 2014. He chose the South East suburbs for their proximity to quality schools, transport links, freeway access and tertiary institutions.

His first investment property was also purchased in Berwick given his familiarity with the area and strong demand for family-friendly amenities.

At the time interest rates were lower and the Singhs had a good deposit after saving hard.

Reflecting on his early investment experience, Mr Singh emphasised the importance of a solid financial foundation.

“Having a healthy deposit is critical. It gives any investor a good head start,” he said.

“Ideally, aim for a 30% deposit. At a minimum, 20% is required to avoid mortgage insurance. A smaller deposit of 5% or 10% could make repayments stressful in the long run.”

He added, “The higher your mortgage, the more you will pay over time — and over 30 years, those additional costs add up. It’s essential to ensure repayments are manageable. There are plenty of online tools available to calculate mortgage costs and help plan ahead. Always ask yourself — ‘Will I be comfortable with this?’ “

Mr Singh encourages potential investors to explore federal and state government schemes designed to support property buyers. However, his most important piece of advice is simple — 'be patient'.

“It is crucial to remain patient, whether you are buying your first home or an investment property. Do not rush into the market. Take your time, negotiate well, and research the area. Look for suburbs with good schools, hospitals, and accessible transport.”

Currently, Mr Singh is holding off on further purchases as he observes market trends. If investing today, he says he would prioritise smaller, energy-efficient homes.

“Start with a two or three-bedroom property. You don’t need a mansion. Take a cautious approach, plan carefully, and avoid rushing. Selling a property can take three to four months to settle, so long-term budgeting is key. Consistency is the most important factor.”

He also highlighted the ongoing costs rental providers must budget for, including land tax, council rates, water charges, and insurance — which has significantly increased — along with mandatory annual safety checks such as smoke detector servicing.

“The smoke detector check alone can cost $500 to $600 per property each year. While tax-deductible, it doesn’t mean you’ll recover the full amount. Holding a property is expensive,” Mr Singh explained

He also advises having a mix of positively and negatively geared properties to maintain cash flow.

Mounting property investment costs in Victoria are driving some investors to consider opportunities interstate.

Mr Singh owns property in the regional Queensland town of Ipswich where land tax is incorporated into quarterly council rates - offering a more affordable model compared to Victoria.

"Tax is structured differently in Queensland and overall, it is cheaper than Victoria," he noted.

Mr Singh also expressed regret at not investing in South Australia, particularly Adelaide, where property prices have experienced significant growth in the past 12 months.

“Unfortunately, I missed that opportunity,” he said.

A nurse by profession, Mr Singh encourages others not to give up on their investment aspirations despite current market difficulties.

"I'm just an ordinary person. If I can do it everyone can do it."

For professional investment property services contact the property management experts at KR Peters at Officer 5943 1111 or Wantirna South 9800 0000.