| In Victoria, the total land tax revenue has surged by over 300 per cent, jumping from $1.8 billion in the 2016 financial year to a projected $6 billion in the current financial year. As part of Victoria's COVID Debt Repayment Plan, this land tax surcharge involved reducing the land tax-free threshold from $300,000 to a mere $50,000. I don’t about you, but I am pretty confident when I say that there isn’t a single block of land in Victoria that is valued at $50,000 or less. As a result, approximately 380,000 property investors are anticipated to pay land tax for the first time this year. Why is this a concern in the rental market? The noticeable increase in land tax over the past few years has prompted more investors to reassess their property investments. Those that will stay in the game will likely to pass on a portion of the increased costs to their tenant. Or in other terms – an increase in rental rates. Considering the already strained national rental market, this inevitable rate is going to cause a lot of stress to a lot of tenants. Land tax is imposed by state governments, based on the value of land holdings on 31 December each year. It’s a marginal rate system, meaning the more land one owns, the higher the applicable tax rate. It is calculated based on the unimproved land value assessed by the state’s valuer general, the same valuation used for council rates. Generally, your own principal place of residence is exempt from land tax, but it applies to investment properties and holiday homes. Victoria's new land tax surcharge disproportionately impacts investors with smaller property holdings, leading them to incur significantly higher land tax compared to investors in other states. For a property with an unimproved land value of $500,000, NSW, Queensland, and South Australia impose no land tax. Western Australia charges $780, Tasmania $1,850, and Victoria imposes a whopping $1,950 per annum. According to the ATO, 71.5 per cent of property investors own a single investment property, with many being 'mum and dad' investors on modest incomes. This means that seven out of ten property investors are likely to own only one investment property. By levying land tax on holdings exceeding $50,000 in value (aka every single property), Victoria is essentially discouraging prospective property investors from considering investments in that state. Property expenses, including council rates, insurance, property management, maintenance, and so forth typically amount to 25 to 35 per cent of gross rental income. Consequently, investors are typically left with only 55 to 65 per cent of their gross rental income to cover higher loan interest costs, creating financial strain on property ownership. In these circumstances, many investors may have no alternative but to pass on these increased holding costs to tenants. At the end of the day, this is going to impact how many more “mum and dad” investors will join the market. If you are a renter there is a good chance that this is the type of landlord you have so keep in mind when comments are thrown around on social media on how “evil” landlords are, that sometimes its just your neighbour trying to provide for their retirement and children in the future, whilst covering their costs of today. Need a keen eye to review your current portfolio to determine if costs are outweighing the benefits and projected growth? Please give me a call 1300 736 754 and lets chat. |
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