Are Melbourne Property Investments Still Worth It Despite Victoria's High Land Tax Burden?

Melbourne property investments can still generate strong long-term returns, but the net yield calculation has changed materially since 2024. Victoria now imposes multiple stacked taxes — land tax, trust surcharges, absentee owner surcharges, a short-stay levy, vacant residential land tax, and a new commercial and industrial property tax — that collectively represent the highest property tax burden of any Australian state. Whether holding remains worthwhile depends on asset type, ownership structure, and whether rental strategy is aligned with the current tax settings.

How Victoria's Property Tax Stack Works in 2024–2026

The State Revenue Office (Victoria) land tax framework locked in elevated land tax scales running through to 2033. For a standard residential investment property in Melbourne with a site value of $600,000 — typical for a Docklands or CBD apartment — the annual land tax liability in 2025 sits at approximately $1,950 under general rates. Hold that property in a discretionary trust, and a trust surcharge applies on top, adding roughly $3,000 per year to holding costs.

Additional layers include:

• Absentee owner surcharge: An extra 4% per annum on taxable land value for non-resident owners, as outlined by the Victorian SRO absentee owner surcharge, relevant to the significant proportion of overseas-held CBD units.
• Vacant residential land tax (VRLT): Applies where a Melbourne residential property is unoccupied for more than six months in a calendar year under the VRLT rules. At 1% of capital improved value, a $650,000 Docklands unit triggers a $6,500 annual charge.
• Windfall gains tax: Applies to land rezoned after 1 July 2023 that gains more than $100,000 in value under the Windfall Gains Tax Act 2021 (Vic), at rates up to 50% on uplifts above $500,000.
• Commercial and industrial property tax (CIPT): Replacing stamp duty for commercial transactions from 2024, with an annual levy of 1% of site value under the CIPT reform framework.

The Short-Stay Levy: What Airbnb Owners in Melbourne Need to Know

Victoria introduced a short-stay accommodation levy effective from 1 January 2025. Platforms such as Airbnb and Stayz are required to collect a 7.5% levy on the value of short-stay bookings in Victoria and remit it to the SRO, as confirmed by the Victorian Government short stay levy announcement.

For a Docklands apartment generating $35,000 per year in short-stay revenue, the levy adds approximately $2,625 in annual cost — passed through in platform pricing or absorbed by the host. When combined with land tax, owners corporation fees averaging $4,000–$8,000 in high-rise buildings, and vacancy risk, the gross-to-net yield compression on inner-city short-stay assets is now significant.

Some owners are evaluating a shift to long-term residential tenancies specifically to avoid the levy, reduce vacancy exposure, and align with Victoria’s residential rental minimum standards, while also potentially reducing exposure to VRLT.

Worked Scenario: Docklands Unit Holding Costs in 2025

The following figures are illustrative examples only and do not constitute financial or tax advice.

Cost Item

Annual Estimate

Land tax (site value $600k, general rate)

$1,950

Trust surcharge (if held in trust)

~$3,000

Short-stay levy (on $35k revenue)

$2,625

Owners corporation fees (mid-range)

$5,500

Property management / platform fees

$4,500

Rates and insurance

$2,200

Total holding costs

~$19,775

Against gross rental income of $35,000, net yield before mortgage costs is approximately 2.1% on a $720,000 purchase price. Add interest at 6.2% on an 80% LVR loan, and the property is negatively geared by roughly $28,000 per year. The investment case then rests almost entirely on Melbourne's long-term capital growth trajectory.

Melbourne Long-Term Capital Growth vs Tax: Is the Hold Still Justified?

Despite the tax environment, population projections from the Australian Bureau of Statistics continue to support Melbourne’s long-term growth outlook, particularly given infrastructure investment and relative affordability compared to Sydney. The question is not simply whether to hold, but how to structure and manage the asset to reduce unnecessary tax drag.

Switching a short-stay property to a compliant long-term tenancy eliminates the short-stay levy, reduces vacancy risk, and in some cases removes the VRLT exposure entirely. Reviewing ownership structure — particularly trust versus individual ownership — can affect the land tax surcharge calculation. For investors approaching the decision to sell an investment property in Victoria, capital gains tax timing and the ATO capital gains tax framework interact with state-level land tax obligations.

For properties requiring accessibility upgrades to attract stable long-term tenants — particularly in an ageing population — working with specialists in home accessibility modifications can also improve rental appeal and reduce vacancy risk.

How a Property Specialist Can Help Model the Numbers

Firms like Forge Real Estate offer tax-aware cashflow appraisals — not tax advice — that translate these layered state levies into asset-level projections. Using Docklands and inner-city CBD case studies, Forge models land tax, short-stay levies, owners corporation fees, and rental income together to produce a net yield picture across different hold periods and rental strategies. For investors weighing long-term buy-and-hold against selling or restructuring, this kind of scenario modelling helps clarify whether Melbourne's capital growth case still justifies the holding costs in a high-tax state environment.

Forge Real Estate Melbourne can help you blueprint your future by finding the perfect blue-chip property where your lifestyle needs and investment goals converge.

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✉️ Email: info@forgeproperty.com.au

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