Why You Should Be Cautious When Buying Property for Short Stay in Victoria

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Introduction

With the rise of platforms like Airbnb and Stayz, more Victorians have been tempted by the idea of buying property specifically for short-stay accommodation.

On paper, it looks straightforward: buy a townhouse in St Kilda or an apartment in Sorrento, list it online, and watch the bookings roll in.

However, as someone who’s worked in conveyancing across Melbourne and the Mornington Peninsula for more than 25 years, I can tell you this area is fraught with traps.

From sudden council restrictions to new Owners Corporation rules and state-level taxes that seem to grow every year, buying with the aim of running short stays demands serious caution.

Let’s walk through where things stand legally, the key risks, a realistic story of what can go wrong, and what all this means for you if you’re thinking of diving into short-term letting.

Background / Current Legal or Market Position

The idea of renting out property for short periods isn’t new. Coastal towns like Rye, Rosebud, and Inverloch have had holiday homes for decades.

But it’s the modern ‘short stay’ model that’s changed the game. Thanks to online booking platforms, property owners can self-manage stays as short as one night. The flow-on effect has seen property values (and rents) rise in traditional holiday belts and even in inner-Melbourne.

This has drawn the attention of regulators.

State legislation

The Victorian Parliament passed the Short Stay Accommodation Act 2018, amending the Owners Corporations Act 2006 (Vic) to tackle problems like noisy parties and damage in apartment complexes.

Under these rules, an owners corporation (OC) can take action against lot owners who allow ‘short stay occupants’ to interfere with other residents’ use and enjoyment of their property. They can issue breach notices, seek orders for compensation up to $2,000, and even ban certain operators from offering short stays for up to 12 months.

Then there’s the new Short Stay Levy Act 2024, which came into effect on 1 January 2025. This Act imposes an extra levy (currently 7.5% of gross short-stay income) on owners who let out properties for fewer than 28 days.

Council and planning controls

Local councils also impose their own planning requirements. For example:

  • Mornington Peninsula Shire Council has introduced strict rules requiring a registration process for short-stay rental properties, with a code of conduct and fines for breaches.

  • City of Melbourne and City of Port Phillip (covering suburbs like South Melbourne and St Kilda) are exploring tougher controls, including caps on the number of days a property can be used for short stays.

In short, between state taxes, owners corporation powers and local planning controls, buying property purely for short-term letting is not as simple as it might seem.

Key Issues Explained in Detail

Owners Corporation powers to restrict or ban short stays

Under the Owners Corporations Act 2006 (Vic), an OC can make rules regulating the use of lots and common property.

Recent updates allow owners corporations to pass special resolutions banning short-stay letting altogether (where stays are under 28 days), provided they achieve the required majority vote.

We’ve already seen apartment complexes in Docklands and Southbank do exactly this. Purchasers who assumed they could Airbnb their investment later found they were barred by new OC rules.

Local council compliance

Councils such as Mornington Peninsula Shire require registration of short stay rentals, annual fees, compliance with a local code, and appointment of a contact person within 30 minutes’ reach at all times.

If complaints arise from neighbours about noise, parking or rubbish, you may face fines or even a cancellation of your registration.

Similarly, some areas (like Phillip Island under Bass Coast Shire) are now considering limits on how many properties can be registered for short stays in a single street.

Tax obligations

The Short Stay Levy Act 2024 (Vic) has introduced a 7.5% levy on short-stay accommodation income. This is on top of any federal income tax obligations.

Buyers who run a property purely as a short stay operation without understanding these added costs may find their profit margins quickly eroded.

Finance issues

Banks are increasingly wary of lending for properties intended solely for short stays.

Valuations can come in lower if local restrictions mean the property cannot be freely used as a short stay. Some lenders may also refuse to recognise short-stay income in serviceability assessments.

A Local Case Study: The Blairgowrie Misadventure

Let me share a fictionalised but very realistic scenario based on common situations we see.

Tom and Maree, a Melbourne couple in their early 50s, bought a neat three-bedroom home in Blairgowrie intending to list it on Airbnb. They borrowed heavily on the assumption of year-round bookings.

Initially things went well, especially over summer and Easter. However, after a spate of noisy weekend parties (none run by them personally—just guests who didn’t care), local residents lodged complaints with Mornington Peninsula Shire.

Tom and Maree were hit with fines under the short stay code and placed on notice that repeat breaches could see their registration revoked.

Meanwhile, their owners corporation (covering the shared driveway and common fences) passed a special resolution banning short stays altogether after residents grew sick of the constant turnover.

With the OC rules changed, Tom and Maree were legally required to stop operating their short-stay rental. Now they were left servicing a hefty mortgage with far lower traditional rental income than they expected—or facing the prospect of selling in a flat market for holiday houses.

What This Means for Buyers and Sellers

If you’re thinking of buying a property primarily for short-stay letting:

  • Check the OC rules thoroughly before signing. Ask us to review whether there’s any existing or proposed restriction on short-stays. Under section 138 of the Owners Corporations Act 2006 (Vic), rules cannot be unreasonable, but a properly passed ban on short stays is generally enforceable.

  • Look into council regulations. Each council in Victoria is different. Mornington Peninsula Shire, Bass Coast, City of Melbourne and City of Port Phillip all have varying approaches. Some require permits or have caps on days.

  • Factor in the Short Stay Levy. That 7.5% extra takes a significant bite out of your gross income. We often see people budget on nightly rates alone, forgetting state levies, GST obligations for some, higher cleaning costs, insurance, and management fees.

  • Expect higher insurance premiums. Insurers often impose extra conditions or exclusions on short-stay use. You’ll need specialised landlord insurance that covers short-term guests.

  • Understand the local rental market fallback. If short stays are later banned by council or OC rules, can you still let the property long term at a level that services your mortgage?

For sellers, if your property has been operated as a short stay, be ready for additional buyer due diligence. Some buyers are now wary of properties with a history of problematic short stay use, given the reputational or regulatory baggage.

Conclusion: How Victorian Property Settlements Can Help

Short-stay property investment in Victoria is no longer the low-risk, high-reward strategy it might have appeared a decade ago.

Today it requires careful due diligence on owners corporation rules, local council requirements, and broader state laws like the Short Stay Levy Act 2024 (Vic).

At Victorian Property Settlements, we’ve helped many buyers navigate these complexities. We can:

  • Review contracts and Section 32 documents for OC rules or restrictive covenants.

  • Check planning certificates and local overlays that may affect short stay operations.

  • Help you understand your exposure under current Victorian legislation.

If you’re considering buying property in Victoria for short-stay use, reach out before you sign. We’ll give you clear guidance based on over 25 years in the local market.