Stamping out investment!
The Victorian government has unveiled a package of tax reductions to address the perceived issue of lack of affordable housing for first home buyers. While immediate savings are offered to first home buyers by reducing stamp duty the lost stamp duty revenue is made up by removing off the plan stamp duty concessions previously available to investors in off the plan developments.
Removal of off-the-plan stamp duty concessions
The policy removes the off plan stamp duty concession for purchasers of residential properties for use as an investment property. The concession is still available for first home buyers and owner occupiers of residential property only.
The policy also removes the concession entirely for any person buying an off the plan commercial or industrial property, regardless of whether that person intends to occupy or use the property as an investment.
The changes will affect contracts signed after 1 July 2017 and will largely impact the investor market (both foreign and local) for off the plan apartment and townhouse developments.
Removal/reduction in stamp duty
First home buyers purchasing properties valued below $600,000 will be exempt from stamp duty. For example, a first home buyer who purchases a property worth $595,000 will save approximately $15,300.
In addition, first home buyers who purchase properties which exceed $600,000 should also take note. There are phased in concessions for properties with values between $600,000 and $750,000. For example, a first home buyer who purchases a property worth $700,000 would ordinarily have stamp duty payable of $37,070. Under the proposed changes, the purchaser would save approximately $12,357.
The first home owner grant is also being extended to $20,000 for those purchasers acquiring land in regional Victoria. This is in addition to the proposed stamp duty savings.
Importantly the changes will only apply to contracts that are entered into from July 1 2017. They do not affect any existing contracts.
Tax for vacant properties
A new tax is being introduced as at 1 January 2018 called the Vacant Residential Property Tax (VRPT). The VRPT is aimed at stopping under-utilisation of properties that are not occupied or available for rent. The rate is 1% per annum of the capital improved value of the land and will apply only to specific areas of inner and middle Melbourne.
It is a self-reporting tax and will form part of the land tax arrangements that is managed by the State Revenue Office. There will be exemptions for holiday houses and other legitimate uses. Further details are to be provided in due course.
While these amendments are positive news for first home buyers and those of you selling land/property to the first home owner market, they do pose challenges to investment in new house/land, apartment, townhouse investments. This is already an area of uncertainty with the major financiers steadily retreating from this area due to perceived overexposure to a hot property market and will only make getting new developments off the ground more difficult.
The devil will be in the detail and the ability of the changes to attempt to cool the housing market in Victoria will only be seen over time. The Commonwealth government is due to announce a raft of policy measures with the aim to make housing more affordable in Australia, so expect further changes in the coming months.
For more information about how these changes will affect your plans for your business or next development, please contact Sebastian Renato, Principal on +61 3 9794 2552 or or Peter Mason, Principal on +61 3 9794 2643.