Top suburbs for rental yield in Victoria

The outlook for property investors in Victoria has been put under the microscope in the recent past. In September 2023, the Property Investment Professionals of Australia found Victoria was the worst of all eight states and territories for property investors, in the face of new land taxes introduced by the Andrews government.

Victoria remains an enduringly appealing place to live though, with Melbourne frequently ranking very well in global lists of the most liveable cities in the world. If you’re an investor interested in Australia’s second most-populated state, these are the suburbs with some of the highest rental yields.

Property investing in Victoria in 2024

In 2024, property investors in Victoria have been significantly impacted by new land tax regulations, introduced as part of the Victorian Government's COVID debt repayment strategy. Since 1 January, an additional land tax surcharge has applied to people who own more than one property. For example, those who own an investment property where the land has an “unimproved value” of $500,000 have had to pay an additional $1,175 in land tax. This levy is expected to last for several years, as the state pays down Covid debts that at one point exceeded $30 billion. There has also been a notable increase in the absentee owner surcharge rate, which doubled from 2% to 4% for those who own property in Victoria and live outside the state.

All this has seen many investors think twice before looking to Victorian property. In October last year, Buyers Agency Propertyology announced it would be boycotting Australia’s second biggest state, until “significant improvement in the State Government’s attitude.”

This has seemingly flowed through to prices. While other parts of Australia have seen property prices increase in 2024, Melbourne has mostly flatlined - the median dwelling price remains below October '23 and well below the all time highs in early 2022.

None of this necessarily means Victoria is a bad bet though. Rents in Melbourne and throughout the state continue to rise, which could partly be due to investors leaving the market. Higher rents could drive more renters to turn to home ownership, which could improve prices.

Read more: Melbourne Suburbs to watch in 2024

Victoria rental yields in 2024

Source: CoreLogic. Data reported to the period ending April '24. Median values account for sales transactions over three months.

Rental yields in Victoria, in both metropolitan and country areas, are comparatively lower than most other regions. Only Sydney has lower rental yields for houses than Melbourne, while at 4.4% units in Metro Victoria have the joint lowest yields in the nation. It’s a similar story outside of Melbourne, with yields in regional Victoria also among the lowest in Australia at 4.1% and 4.8% respectively for houses and units.

Part of this is likely due to the Victorian economy, which is more services-based than the likes of WA and Queensland. One of the biggest drivers of high rental yields is the population of transient workers, which is often relatively high in areas where the main industry is mining or agriculture. The high yields in regional Western Australia, for example, are often in resource rich areas, where workers temporarily live during mining projects, driving up rental demand, but without an equivalent demand for owner occupied property.

It’s also worth keeping in mind that the land taxes and absentee owner surcharges need to be factored in when considering the overall return from the property. Rental yields might represent some of the property’s value, but this could be offset by it being comparatively more expensive annually to own an investment property in Victoria than elsewhere.

Read more: Top rental yields in Australia

Highest rental yields in Victoria (Houses)

Source: CoreLogic. Data reported to the period ending April 2024. Median values account for sales transactions over 12 months.

Ouyen, near the rural city of Mildura, is currently the standout by rental yields for houses, at 9.4%. The next strongest, Wahgunyah, yields an average of 7.2% annually while third place (Warracknabeal) is back at 6.8%.

Ouyen is a major agricultural centre, known for producing sheep as well as wheat, barley and oats. This might be one reason why rental yields are so high (workers moving to the area) but only temporarily. Warracknabeal and Nhil are other suburbs in the top five with a strong farming presence.

The majority of these properties, as tends to be the case with high rental yields, are in rural Victoria. Not a single suburb of this top 25 is in Melbourne, Geelong, Ballarat or Bendigo.

Highest rental yields in Victoria (Units)

Source: CoreLogic. Data reported to the period ending April '24. Median values account for sales transactions over 12 months.

Victorian units are unusual in that many of the suburbs with the highest rental yields are in the capital. For most of Australia, high rental yields tend to be in more remote areas, but Carlton, Melbourne CBD, Southbank and West Melbourne are all in the top 15 for Victoria.

Part of this is likely due to the current property price/rent dynamic in Melbourne. In Carlton for example, unit prices dropped 15.5% from February ‘23 to January '24 and have been mostly unchanged since. Over the same period, the average rent for a unit in Carlton rose about 25%.

Image by John Simmons via Unsplash. 

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