Victorian investors are selling up over costly land tax

Stockdale & Leggo agencies across Victoria have reported a large number of mum and dad investors selling up ahead of the state’s new land tax coming into effect next year.

Chief Executive Officer and Co-director Charlotte Pascoe said in every corner of Victoria, Stockdale & Leggo had been inundated with calls from investors saying they have no choice but to sell their second property.

“Our agents have been inundated by mum and dad investors, hardworking first-time investors and retirees saying it’s just not worth the extra cost and hassle to retain a second home,” she said.

“That now means more tenants may potentially not have a roof over their heads.”

The sell up comes after Victorian Premier Daniel Andrews and Treasurer Tim Pallas announced in the May Budget that 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 accrued during Covid.

The Covid Debt Repayment Plan will be introduced from January 1, 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, with $1.15 billion of that raised next year alone by cutting the tax-free threshold for land tax from $300,000 to $50,000.

Landlords 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.

Ms Pascoe said the reaction from landlords when the land tax was announced was instant.

“The moment that happened, I was speaking to one of the directors at lunchtime and he said, ‘Charlotte, we’ve had four calls this morning from owners going, ‘I’m done. This is ridiculous. We just can’t do it anymore’,” she said.

Ms Pascoe said the land tax was the straw breaking the camel’s back, with Victorian landlords already frustrated from numerous hard-hitting government policies over the past three years.

She said the pandemic moratorium meant landlords were unable to act when renters didn’t pay their rent even though they still had to pay their mortgages. 

Rental reforms have also increased the cost of owning a rental property, with owners faced with thousands of dollars worth of upgrades, while rising interest rates were also making it unsustainable to maintain a second mortgage.

Ms Pascoe said speculation about rent caps also had landlords on edge.

“We had owners who were literally hanging on by the skin of their teeth and this is just the final straw,” she said.

“There tends to be this impression that all investors are rich but that’s just not the case.

“Many just cover their mortgage with the rent. They are paying more in expenses, rates and it’s not surprising with this new land tax that many are electing to sell.

Jian Cheng is among those investors who’ve had enough and decided to sell and move interstate.

The 49-year-old agency nurse said it was no longer financially viable for her and her husband to retain the Mooroolbark investment property they bought as part of a retirement plan to secure their future.

“The state government is out of touch and this new land tax is forcing us to sell up,” she said.

“We will sell this investment property, and also our own home, as soon as possible, then move interstate to invest and live in either NSW or Queensland.”

Ms Cheng said it felt as though the government was punishing investors for trying to secure their future.

“We are not millionaires,” she said.

“We are ordinary, hardworking people who want to retire safely. 

“We had invested for our retirement and now we are forced to sell up and move. 

“I was taught by my father to be self-sufficient, but this is now impossible because this ruthless government is greedy and driving people away.”

Ms Pascoe said Victoria, like most of the country, was in the midst of a rental crisis and the land tax policy would also hurt tenants, who were already struggling to find homes.

According to PropTrack’s latest figures, Melbourne’s vacancy rate is just 1.4 per cent, while regional Victoria’s is 1.32 per cent.

“Based on the stats, for every four rental properties that go on the market, only one is replaced,” Ms Pascoe said.

“We lose three. So where do those three families go?”

Ms Pascoe said there was a lot of talk in Victoria about potential solutions, with build-to-rent one of the main fixes bandied about.

And while she believes build-to-rent can help in the long-term, more immediate solutions are needed.

“They (the State Government) need to look at how we get someone to believe that it’s worthwhile holding onto their rental property,” Ms Pascoe said.

“So incentivise them in some way to hold the rental properties to keep the market going, and also get people to re-enter the market and see value in buying a rental property today.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.