The Real Estate Institute of Queensland (REIQ) has called on the State Government to repeal its “illogical” land tax regime or risk worsening the rental crisis and stymying investment in the state.
From July 2023, the Queensland Government will charge tax based not just on the value of an investor’s Queensland land but also on the statutory value of any interstate land they own.
REIQ Chief Executive Officer Antonia Mercorella said she had been inundated with calls from residential and commercial investors and property managers outraged at the State Government’s “double dipping”.
“There is no doubt this will make some investors make the decision to sell up,” she said.
“Just this morning, I had a real estate agent telling me that one of his landlord clients had said, ‘That’s it, it’s the last straw; I’m going to sell all of my Queensland properties’.”
Ms Mercorella said the REIQ wanted the Queensland Government to overturn the recently passed legislation and focus on incentivising investment rather than making it more difficult.
“We’re calling on the government to repeal it,” she said.
“We know that the horse has bolted in the sense that the legislation has passed, but we also know that it wouldn’t be the first time bad legislation gets repealed.
“We think it was done in haste, we think it’s the wrong decision, and we’d like to see the government reconsider and repeal it.”
The accumulative effect
Ms Mercorella said the legislation would likely be “the straw that broke the camel’s back” for many residential investors as it followed hot on the heels of rental reforms that made a lessor’s ability to end periodic tenancies more difficult.
“It’s the cumulative effect of these things that’s significant,” she said.
“If you own an investment property, you’ve got your initial acquisition costs, you’ve got your mortgage repayments, you’ve got increasing interest rates, and you’ve got various other property-related expenses such as maintenance requests.
“Phase one of the new rental reforms start on October 1, and the government has already started to talk about phase two.
“We’re supportive of some of those reforms, but the reforms that constrain and limit the rights of lessors, when you combine all of that, there’s no doubt that there’s a bunch of investors out there who have, and will continue to, make the decision that this is all too hard.”
Creation of an ‘Us versus Them’ mentality
Ms Mercorella said it was a myth that all investors were wealthy, and the government was creating an “us versus them” mentality between investors and tenants when it should be trying to unite all of the players to solve the rental crisis.
She said if Queensland landlords sold up, drastically low vacancy rates would drop further.
Ms Mercorella said many investors were simply trying to set themselves up, so they did not have to rely on the pension when they retired.
“They’re just trying to make sure that they’re providing for their own future and not relying on government handouts,” she said.
Founder and Head of Research at InvestorKit, Arjun Paliwal, said once the new land tax starts in the 2023-2024 financial year, an investor who owns a Queensland property with a taxable value of $745,000, along with a Victorian property with a statutory value of $1 million, will pay $7169 as opposed to the $1950 they would have paid a year earlier.
Mr Paliwal said this would overwhelmingly impact mum and dad investors.
“I put investors in two categories,” he said.
“One is a sophisticated, professional investor who’s going to say, ‘This is one asset out of many, and I understand that. I bought here for the city and how the city’s economy is going along with population growth. I’m ok to wait it out long-term’.
“The other investor is the mum and dad who are looking to get the best out of between one and three properties.
“They may very well not want to have thousands of dollars of extra cost each year and they may look at selling.”
Rental crisis could worsen
Mr Paliwal said in the short-term, investors selling up provided more opportunities for home buyers to enter the market but long-term, it would have a negative effect on the rental market.
“It means that there is a lower pool of properties for rent, and this will massively increase rents in the future with already stretched and stressed vacancy rate,” he said.
Mr Paliwal said at the moment, 6.5 in every 10 home buyers was an owner-occupier, but he could see that figure rising to eight in 10 once the land tax comes into play next year.
“When you have owner-occupiers making up eight out of 10 properties, and you only have two properties for rentals, it means those future home buyers are going to have more of their savings go towards rent as prices rise,” he said.
“It also means there will be more homelessness, and it will mean there will be a bigger gap between what people can save and what they need to get onto the property ladder.
“There will also be less supply as owner-occupiers tend to hold onto their houses a bit longer.
“If you’ve got owner-occupiers holding their homes longer, you’ve got fewer properties hitting the market for sale, and you’ve got fewer properties available for rent, it does not create a pretty picture.”
The Queensland Government responds
A spokesperson for Queensland Treasurer Cameron Dick said the land tax reforms were expected to generate about $20 million a year in revenue and affect no more than 10,000 landowners when there were two million privately owned parcels of land in Queensland.
Principal places of residence land are and will continue to be exempt, while the land tax will only apply to the taxable Queensland landholdings of individuals who own land in multiple jurisdictions.
Taxpayers will not be paying tax in Queensland on land held interstate.
Only some landholders with interstate landholdings will be affected as landholders will still be able to access the relevant tax-free threshold and exemptions.
The spokesperson said a total national taxable land value would be established for owners with landholdings across multiple states and territories.
This will determine the land tax rate that will be applied to only the Queensland proportion of the value of that individual or entity’s total landholdings.
This change to land tax will not impact landholders who only own land in Queensland.
“The legislation to close this loophole passed the parliament with the unanimous support of all members on 24 June 2022,” the spokesperson said.
“This sensible, prudent reform means interstate investors get treated the same as Queensland investors, wherever they live and wherever they own property.
“Currently, interstate investors who own properties across several states can access the tax-free and progressive rate thresholds multiple times, depending on how many states they own property in.”
The impact on commercial
Ms Mercorella said the new land tax regime was a rare beast that managed to hurt Queensland landholders, renters, companies and small businesses in one fell swoop.
“I would have thought that the Queensland economy would benefit from attracting businesses to operate in our state, bringing skills, innovation, and jobs for our growing population,” she said.
“This will likely send commercial rents through the roof, and given this tax is only triggered by Queensland property holdings, it sends the message to businesses to shut down shop and set up elsewhere to get the monkey off their back.
“Equally, given we are living in the tightest rental market in the history of our state, and 36 per cent of our population rent their homes with the vast majority of housing supplied by private investors, one would assume that it’s not the time to risk rocking the boat of private residential rental stock.”
Ms Mercorella recognised that the rental crisis gripping not just Queensland, but the whole country, could not be solved overnight, but she said continually creating new requirements and making investing more onerous was not the solution.
She said the supply of rental properties needed to be increased and that included all levels of government reducing red tape, freeing up land faster and incentivising investors to invest.
“We’ve got to find a way to incentivise and encourage investors to put those properties onto the long-term rental market and that comes down to making sure we’ve got regulatory frameworks that are fair and balanced and recognise the rights of both tenants and property owners,” Ms Mercorella said.