Victoria’s property tax regime is facing a potential overhaul, with the Carroll Labor Government announcing new exemptions for residential developers and committing to review two major foreign investor surcharges if re-elected in November.
The announcement comes as the state struggles to meet its target of delivering 800,000 homes over a decade, with annual construction running at approximately 55,000 dwellings, well below the 80,000 required.
Under the changes, developers delivering affordable housing through Victoria’s Development Facilitation Program (DFP) will be exempt from the Absentee Owner Surcharge (AOS) during construction.
The government also plans to extend exemptions for residential developments for up to two years after completion, giving developers additional time to sell or lease properties without incurring the surcharge.
A separate one-year exemption following construction will be formalised for land sales, regardless of the type of land involved.
Treasurer Colin Brooks said the changes were designed to provide greater certainty for developers and encourage housing investment.
“These changes are simple – build affordable homes and under Labor you pay less tax,” Mr Brooks said in the government’s October 14 announcement.
“This is about providing more certainty for builders so that the pipeline of housing continues to grow for first home buyers.”
The government has also committed to reviewing the AOS and Foreign Purchaser Additional Duty (FPAD) if it wins the November 28 election.
According to reporting by realestate.com.au, the review would examine how the taxes are collected, their impact on foreign investment in residential construction and the implications for first-home buyers.
Victoria introduced the two surcharges under former premier Daniel Andrews more than a decade ago.
The FPAD currently imposes an additional 8 per cent duty on residential property acquisitions by foreign purchasers, on top of standard stamp duty, while the AOS applies to certain absentee and foreign owners of Victorian land.
The proposed changes come amid growing concern that Victoria’s property taxes are making residential developments less financially viable, particularly larger apartment projects that rely on institutional and overseas investment.
Housing Industry Association Victorian executive director Keith Ryan told the Herald Sun that while the announcement was a useful step, the concessions were unlikely to resolve the broader feasibility challenges facing developers.
To qualify for the DFP, projects generally need to meet minimum development costs of $50 million in metropolitan Melbourne or $15 million in regional Victoria, alongside other eligibility requirements.
Mr Ryan said government taxes, regulatory costs and charges now accounted for more than 40 per cent of the cost of developing a typical new house-and-land package in Melbourne.
He warned that reducing the AOS alone would be unlikely to make many medium- and high-density developments commercially viable.
“Essentially it’s not really going to do much to deliver more affordable homes and we’re already hearing that a lot of these projects, even when they do get DFP approval, aren’t necessarily going ahead – a minor tax cut might help a few get going,” Mr Ryan told the publication.
“But from what I’m hearing, there’s so many other challenges that it’s very unlikely they’re going to get very far, so I think it’s useful step but it’s not going to do much.”
The Property Council of Australia has also welcomed the commitment to review the tax settings, while calling for more substantial reform.
Its Victorian executive director Cath Evans told realestate.com.au that the government had “recognised the impact Victoria’s property tax settings are having on investment and housing delivery, and these changes are a step in the right direction”.
“We know the 2023 doubling of the Absentee Owner Surcharge has had a significant impact on investment in Victoria, with an estimated $5bn in lost economic activity,” Ms Evans said.
“Victoria cannot afford to keep losing investment to other states.”
The government intends to introduce the updated DFP guidelines before entering caretaker mode on November 3, ahead of the November 28 state election.
While the exemptions would provide some immediate relief for eligible developments, any broader changes to Victoria’s foreign investor taxes remain dependent on the election outcome and the proposed review.
For developers and property investors, the distinction is significant: targeted exemptions are being progressed now, but the future of Victoria’s wider foreign investment tax regime remains unresolved.