Investing in the Mornington Peninsula: all you need to know before taking the financial plunge

On the tip of Victoria’s Mornington Peninsula, Pretty Portsea has an enormous amount going for it – sea, surf, sand, water sports, and some of the fastest-rising rents in Australia.

For investors, it looks almost an idyllic option … until some of the country’s fastest-rising property prices are also factored in.   

“If you were looking for investment potential in sea-change areas, the Mornington Peninsula has had some extraordinary increases lately in rental prices,” said Domain senior research analyst Nicola Powell. 

“But the strong rates of price growth could be off-putting. It might be a good idea to look further afield where homes aren’t quite so expensive and driving down rental yields.”

The latest Domain report on rents in Victoria shows strong increases in some of the most sought-after seaside spots.

Portsea, for instance, has seen an annual change in the median weekly asking house rent of an astounding 35.7 per cent to $950, although the median gross rental yield sits at just 2.51 per cent. 

Peninsula partner, Sorrento, performed strongly too, with a 23.6 per cent rise in the median rent to $680 but a marginally better yield at 2.77 per cent.

“But you’re still getting a lot for your money,” argues Liz Jensen of Kay & Burton Portsea.

“It’s what we call globally a very ‘thin’ market, that’s one where there’s not much of it, it’s a limited resource, so it will only become more precious over time.”

“It has an exceptionally beautiful beach, parks, little hamlets, and you feel like you’re on a little island and that you’ve escaped from the world. And rents will keep on going up. At the moment, we have renters lining up on the street trying to outbid each other.”

Generally, however, whether to invest in a Victorian coastal town depends very much on the property purchaser’s endgame.

If they’re planning to invest and later move there for lifestyle, then that “pleasure investing” could well justify the expense of the initial purchase, says Sue Dahn, a partner in Pitcher Partners.

“It then becomes a lifestyle asset, so it doesn’t matter so much if the aggregate of financial returns is unpredictable. You’d still want to make a very careful check of what people are willing to pay in rent, though, because you don’t want fees, insurance, repairs, maintenance and depreciation to take the net rent down to zero.”

But Victoria’s south-west coast could be a better long-term investment, suggests Dr Powell.

Rents for houses in Portland, 470 kilometres west of Portsea – between Port Fairy and Nelson – rose a respectable 12.5 per cent over the past year, but the yield was significantly higher, at 6.91 per cent. 

Nikki Hudson of Hudson Property Portland says the town’s a favourite with a lot of investors.

“We’re completely surrounded by coast, and I think it’s still currently a little bit undiscovered,” she said.

“You can buy an 800-square-metre or 900-square-metre block of land here for less than $100,000, which makes it very attractive.”

The town of Wonthaggi, 140 kilometres east of Portsea in the Bass Coast Shire, is perhaps even less discovered.

Here, rents went up by 10.6 per cent over the past year and by 43.1 per cent over the past five. Ben Nash of Southcoast First says it could be an excellent investment.

“The area is beginning to take off now, and it’s catch-up time,” he said.