The Real Estate Institute of Victoria (REIV) has slammed the Victorian Budget as a blatant money grab that will see property investors flee the market and cripple tenants with higher rents.
In today’s State Budget, Premier Daniel Andrews and Treasurer Tim Pallas said every Victorian with a second property, be it a holiday home, an investment property, businesses or offices, would be hit with a new tax as part of the State Government’s plan to pay off the state’s skyrocketing debt.
A COVID Debt Repayment Plan will be introduced, with temporary levies imposed to help pay off the debt incurred during the “one-in-one-hundred-year event”.
It means those with a second property will pay almost $5 billion of the planned $8.6 billion COVID debt levy over the next four years, through lower tax-free thresholds, higher rates and extra payments on their land tax assessments.
Mr Pallas said $1.15 billion of that will be raised next year alone by cutting the tax-free threshold for land tax from $300,000 to $50,000.
Victorians with more than one property will pay a minimum of $5000 over the next decade, with a new $500 annual tax for properties with a land value between $50,000 and $100,000.
Those with a second property valued between $100,000 and $300,000 will pay an annual $975 levy and landholdings worth more than $300,000 will see land tax payments rise by $975 plus 0.1 percentage point of the value of the land over $300,000.
The charges will see investors with an average block of land worth $650,000 fork out almost $1300 a year.
REIV Chief Executive Officer Quentin Kilian said the levy made “no sense”.
“If investors weren’t fleeing the Victorian market before, they will now,” he said.
“In the middle of a true rental crisis caused by (lack of) supply, this is probably the most abhorrent decision a government could make to disincentivise the very same people that are providing the rental stock that is meant to solve this rental crisis.
“It makes no sense at all why the government is going, yet again, after the property sector to try and pay off its debts.”
Mr Kilian said the levies wouldn’t just affect landlords, but would flow through to tenants as well.
“It will flow through in rents,” he said.
“It will flow through in both a reduction in supply and it will flow through in rents, which is going to impact again on the tenants because they will have to carry the burden of this.”
Mr Kilian labelled the levies a blatant tax grab and said despite popular opinion that all investors were wealthy, he said that was far from the truth.
“By reducing the threshold to $50,000 for land tax exemption, they are simply trying to grab tax from every single family in Victoria that has the good fortune to own a second property,” he said.
“In Victoria, 70 per cent of investors own one property, and 43 per cent of those sit in an income bracket of under $100,000 according to the ATO.
“So these are not wealthy individuals or mega landlords as Dan Andrews might like to put it.”
Mr Kilian said he feared many investors would leave the market and it would be impossible to get them to re-enter the property sector.
“If that occurs, we’re not going to get them back because they will go to other jurisdictions or they will go to other investment vehicles.”
Property Investment Professionals of Australia Chair Nicola McDougall agreed.
“This absurd policy will no doubt lead to the exodus of investors in Victoria who are already struggling with significantly higher mortgage repayments,” she said.
“It does seem like the Victorian Government has taken an illogical page out of the Queensland’s Government’s ill-fated and investor-focused land tax playbook from last year, and we all know how that worked out for them.
“It beggars’ belief that at a time of record low vacancy rates, rising rents, and increasing overseas migration – many of whom will initially choose to live in Melbourne but may find nowhere to rent – that the Victorian Government would even consider implementing such a ridiculous policy.
“This is yet another example of politicians having no understanding of how bad policy impacts investor behaviour, especially those aspirational and hardworking property owners who are set to be slugged the most by this latest financial impost.”
The government also announced a plan to abolish stamp duty for commercial and industrial properties in a move that will add $50 billion to the Victorian economy.
As part of the state’s economic growth package, the lump-sum stamp duty system for commercial and industrial properties will transition to an annual property tax from July 1, 2024.
From the middle of 2024, commercial and industrial properties will transition to the new system as they are sold, with the annual property tax to be payable from 10 years after the transaction.
To smooth the transition, the first purchaser of a commercial or industrial property after July 1, 2024 will be able to choose to either pay the property’s final stamp duty liability as an upfront lump sum, or pay the equivalent amount in fixed instalments over a 10 year period.
The government said choosing the annual payment would free up much-needed capital that businesses can invest in expanding their operations and employing more workers.
“Business and industry have told us they want this reform and we’ve listened,” Mr Pallas said.
“These landmark changes will enable businesses to be more dynamic and agile, and to grow and employ more workers.
“We’re removing barriers to larger investments, accelerating business growth and helping our economy grow even stronger.”
These arrangements will not apply to the current owner of any commercial or industrial property purchased before July 1, 2024.
However, once a property enters the new system after this time, stamp duty will never again be payable on a transaction and the annual property tax will apply.
The annual property tax that will ultimately replace stamp duty for commercial and industrial property will be set at a flat 1 per cent of the property’s unimproved land value.