This transcript was generated automatically and may contain small errors.
No doubt that you've heard flocks of investors fleeing Victoria. The new minimum rental standards are one of the main factors being blamed. But are they even that bad? In this episode, I'm going to unpack what the minimum rental standards are, basic costs involved with them, and why other investors fleeing would be creating an opportunity for savvy investors like you. I'm Junge Ma, the lead research analyst at InvestorKit.
Now let's get into it. In Victoria, minimum rental standards are not a new thing. The current minimum rental standards are a long list of compliances regarding smoke alarms, electrical safety, gas safety, blinds, heating and cooling, and so on. If you're curious about the full list, you can go to the Consumer Affairs Victoria website and find it out. I'll actually insert a link in the show notes for your convenience.
To make sure the property is compliant with these minimum standards, there are lots of companies providing check services, and that cost would be somewhere around $300 to $400 for each check, and that check would typically take place once every two years. So every year, your cost would be $150 to $200. And in 2024, the government proposed a list of new minimum standards. That list includes blind cord safety anchor, ceiling insulation, home cooling and heating, drought proofing, hot water system, and shower head. If you are an investor trying to buy in Victoria now, you may want to do some inspection or hire someone to inspect for you to make sure that that property is compliant with all these new minimum rental standards.
And if you find out that the house is not compliant, don't worry, just make sure that you work that into your budget. According to a document prepared by the Victoria government and Deloitte, the main costs would be for ceiling insulation, cost per property would be $2,480. Drought sealing, $607. Hot water system, just $361. Shower heads, to make it compliant, it might cost you $236.
Heating and cooling, another big cost, $1,790. And then blind cord safety anchor, just $45. So in total, if your property or your target property is not compliant at all to the proposed new standards, your total cost would be somewhere around $5,500. So in the short term, that sounds like a big expense. Let's take a median priced house in Melbourne as an example.
$85,000 property, rental yield 3. 55%. Your first year gross rental income would be just above $30,000. That is before property management fee and all the maintenance costs. And this $500 cost will be around 20% of your first year's rental income.
But in the long term, it actually won't be a bad thing. And now I'm going to explain it from five aspects. First, we need to remember that as investors, we are actually housing providers. And it is our duty to provide our tenants a reasonably comfortable and safe housing to live in. And two, if our property is up to the standards and is comfortable and safe, tenants would be happy and they would be staying for longer term.
And that will bring us a steady rental income. Third, if we look at this from a more macro perspective, higher rental standards and higher quality of rental properties will actually make renting a more comfortable option for more people. And that will result in a constantly healthy portion of renters in our housing market. And with a healthy portion of rental demand in the market, investors or landlords can expect a better and steady rental growth in the long term. Fourth, as many investors flee Victoria or Melbourne because of a combination of higher interest rates, higher taxes on rental properties, and this new minimum rental standards, the rental market in Melbourne or in general in Victoria will become tighter.
And as rental demand goes up, rents will eventually be pushed up. And then the rising rents will be making up your capital loss because of all the compliance things. And last, investors should assume the worst case scenario that every state could be following Victoria and make their own minimum rental compliance. When they realize that there's nothing wrong with minimum rental standards to make rental properties more safe and more comfortable for tenants. So in summary, in this episode, we have covered the current minimum rental standards and the proposed potential new minimum standards and the associated costs with them.
For investors who stay in the long term, the benefits we have mentioned previously will eventually balance things out and create a win-win for you between meeting the rental standards and recouping your costs. However, in the end, it is very likely that the rising rents will be passing investors' financial pressure to the tenant market. So that's it for this episode. If you've been thinking of investing in Victoria and maybe put off by the minimum rental standards, I hope this episode has brought more genuine clarity to the picture. As property investors, we always want to make sure that we are looking at the full picture with all the facts and figures.
And if you've got any other questions on investing in Victoria or on the minimum rental standards, write them in the comments below. Arjun and I will do our best to get back to every single one of them. My name is Junge Ma, lead research analyst at InvestorKit. I hope you've enjoyed this episode. I'll see you next week.
