Victorian stamp duty and land tax hikes will ‘worsen affordability’

The Victorian government’s $2.4 billion property tax hikes targeting investors and high-end property buyers will worsen housing affordability, the property industry says.

Thursday’s state budget will include stamp duty hikes on properties worth more than $2 million, land tax increases for large landholdings and a new windfall gains tax on property developers making “multimillion-dollar overnight profits” after rezoning decisions.

Industry groups said the tax changes will impact land prices and homebuyers at all levels.

Melbourne

The property industry has slammed the Victorian government’s stamp duty and land tax hikes. Picture: Getty

Housing Industry Association executive director Fiona Nield said Victoria already had the highest stamp duty rates in Australia, adding housing already contributed up to half the state’s revenue each year.

“New taxes like these are passed on in higher land prices for all and stamp duty inhibits people from selling properties to allow for new homes to be built – it has a direct impact on new housing affordability,” Ms Nield said.

“These increasing taxes will impact land prices and homebuyers at all levels at a time when housing affordability has fallen, particularly in the regions.” 

Property Council Victorian executive director Danni Hunter described the move as a “tax hike on the home ownership dreams of Victorians”.

“They will make it more expensive to buy a home, harder to rightsize your home and less attractive to deliver the new housing we so badly need if house prices are going to remain affordable in Victoria,” Ms Hunter said.

Brighton, Melbourne

The Victorian government said its property tax hikes target the top end of the market. Picture: realestate.com.au/buy

Treasurer Tim Pallas said the targeted budget measures will see those at the top make a larger contribution to funding the services the community needs. 

He said the government had helped the property industry recover from a substantial downturn early on in the coronavirus pandemic.

“At the top end of the market there is a capacity for this industry to make a contribution not only to the wellbeing of the community but also restitution for the investment the state put into their industry when they needed it,” he told reporters on Saturday.

Mr Pallas said the Victorian property market has rebounded over the last six months, fuelled by record low mortgage rates, strong housing sentiment and government incentives.

“We’ve seen a massive bounceback and we’ve seen a massive wealth accumulation event occurring at the top end of the market.”

He noted dwelling prices were more than 50% higher than a decade ago, with the strength in prices expected to continue over 2021.

“It has put pressure on housing affordability while providing spectacular returns for many property investors,” he added.

Real Estate Institute of Victoria CEO Gil King said the majority of state government COVID-19 support was directed to renters, not property owners.

“These taxes will be the final straw for many,” Mr King said. “It is also highly likely that increased property taxes will flow on as rent increases.”

Mr Pallas rejected the industry’s argument that the measures will damage housing affordability and demand.

He said the changes meant Victoria would have comparable arrangements with NSW, where there had been a massive accumulation in asset values. “Clearly their taxing regime has not impeded the market,” he added.

Victorian Chamber of Commerce and Industry chief executive Paul Guerra criticised the property tax hikes.

“People will be disincentivised to invest in things like factories and shopfronts while it will also have a negative impact on the residential property market as people will be reluctant to upsize considering the huge tax implications for doing so,” Mr Guerra said.

“It will drive up house prices in the $2 million-plus category overnight.”

Armadale Melbourne

The Victorian budget will include a new premium stamp duty rate on property transactions with a value above $2 million. Picture: realestate.com.au/buy

Owen Wilson, CEO of realestate.com.au publisher REA Group, said the new and increased property taxes were short-sighted.

“The proposed measures will not only stymie economic growth, they will also be at the expense of all Victorians, making renting, buying and selling impossible for many,” Mr Wilson said.

“It’s inevitable that while these taxes are placed on developers, investors, and commercial landlords, the costs will be passed onto small businesses, young renters and frontline workers, who are already struggling enough.”

The REIV also warned the changes will worsen housing affordability and push homeownership out of reach for many people.

These sledgehammer taxes could cause a flight from property by self-funded retirees, for which property investment is their only form of income,” REIV president Leah Calnan said.

The main budget changes for property

Thursday’s 2021/22 state budget will include a number of changes to property taxes designed to raise $2.4 billion over the next four years. The changes involve:

New premium stamp duty rate

The government will bring in a new premium stamp duty rate for property transactions with a value above $2 million. The move will increase the stamp duty payable to $110,000 plus 6.5% of the dutiable value in excess of $2 million. Currently, the highest stamp duty rate is 5.5%.

Mr Pallas said the change will impact about 3.5% of all stamp duty transactions.

“It brings us more into line with NSW, which has a premium stamp duty rate of 7% on homes worth more than $3.1 million,” he said.

The move is expected to bring in an extra $137 million in the 2021/22 financial year.

The median house price in Melbourne is currently $1,065,000, according to the latest realestate.com.au data.

Brighton Melbourne

The new premium stamp duty rate is expected to raise an extra $137 million next financial year. Picture: realestate.com.au/buy

Realestate.com.au economist Anne Flaherty said the changes equated to an additional $20,000 in stamp duty on a property valued at $2 million.

“Stamp duty is widely regarded as one of Australia’s worst taxes. Increasing stamp duty will further the inefficiencies already created by this tax and decrease affordability for buyers and, as a consequence, renters,” Ms Flaherty said.

Mr Guerra said VECCI will continue to advocate for stamp duty to be replaced.

“The government missed a real opportunity to abolish stamp duty and replace it with a more efficient and fair property tax that would drive economic growth and make it easier for homebuyers and businesses,” Mr Guerra said.





In its 2020/21 state budget in November, the government temporarily waived up to half the stamp duty on purchases up to $1 million – which represent the bulk of Victorian home sales – until the end of the financial year.

The NSW government plans to phase out stamp duty, giving homebuyers the choice to not pay stamp duty upfront and instead pay a smaller annual property tax.

New windfall gains tax

Developers and speculators will face a windfall gains tax of up to 50% on large windfall profits generated by planning decisions to rezone land, from 1 July 2022.

The total value uplift from a rezoning decision will be taxed at 50% for windfalls above $500,000, with the tax phasing in from $100,000.

Mr Pallas said the $100,000 tax-free threshold means the vast majority of landholders will not be affected.

Housing

The government said large property investors are making profits from soaring property values and rezoning decisions. Picture: Getty

Mr Pallas said large property investors continue to profit from soaring property values.

“When the government makes decisions to rezone for example ex-industrial land or create new residential estates, property speculators can make massive windfalls and those profits can be made overnight with the stroke of a pen,” Mr Pallas said.

“We will commit to a new windfall gains tax on these profits that will claw back around about $40 million a year, ensuring these windfall gains are shared with the community and invested in the public infrastructure and the public transport that the community needs.”

Ms Nield said the windfall gains tax was particularly concerning.

“[It] appears to take a disproportionate share of property value from landowners that are in fact helping to support the growth in housing supply that helps keep affordability in check across regional Victoria,” Ms Nield said.

Increased tax on large landholdings

The tax on large landholdings will increase, in a move expected to raise more than $380 million per year on average.

From 1 January 2022, the land tax rate will rise by 0.25 percentage points – to 1.55% – for taxable landholdings between $1.8 million and $3 million, and by 0.30 percentage points – to 2.55% – for taxable landholdings exceeding $3 million.

Mr Pallas said the change will affect less than 10% of land taxpayers, adding that less than 10% of Victorian pay land tax in the first place.

“Compared to the spectacular returns over the past 10 years and even the past six months, this is a modest increase,” Mr Pallas said.

“A taxpayer with $2 million in landholdings will see an increase in their land tax of less than 5%. In fact, an individual with land worth between $2-2.3 million will still pay less tax in Victoria than any other state.”

The family home remains exempt from land tax.

Ms Flaherty said land taxes were already higher in Victoria than in any other state, with the increases following a slate of other recent reforms targeted at landlords.

“These measures are likely to drive more landlords out of the market,” Ms Flaherty said.

“This will decrease the level of stock available to lease, which will push rents up, particularly when international migration resumes.

“These measures are also likely to impact the development of new dwellings in Victoria, which could further the imbalance between demand and supply and drive both prices and rents higher,” Ms Flaherty added.

Gender-exclusive clubs lose land tax break

From 1 January 2022, private gender-exclusive clubs will no longer receive the land tax concession reserved for charities, clubs and associations.

The government said the move will bring gender-exclusive clubs such as the men’s-only Melbourne Club into line with other private organisations liable to pay land tax on their landholdings.

Mr Pallas said any society that excluded 50% of the population from its business did not deserve a gift from taxpayers.

“It’s about sending a message about whether you should be able to access what is essentially a charitable institution exemption for what is essentially a top end of town boys’ club.”

Tax hikes will also impact commercial property

Ms Flaherty said the tax increases will be a “major blow” to the commercial sector.

Victoria’s commercial property sector was hit harder than any other state last year, with many landlords now sitting on vacant properties or receiving substantially less rent than pre-COVID,” she said.

“To now require them to pay more in taxes at a time in which they are receiving less in cash flow is a major blow to their recovery.”

On the stamp duty increases, Ms Flaherty said while $2 million sounded like a lot when talking about houses, the cost of commercial properties can go many tens (or even hundreds) of millions above this level.

“This will significantly impact Victoria’s appeal as a place to invest in and develop commercial property and as a place to do business,” Ms Flaherty said.

This increase in stamp duty is somewhat surprising given moves by other states to consider removing it. The South Australian government, for example, has fully abolished stamp duty on commercial property transactions to become a more competitive location for business and investment.”

C-GettyImages-1288026794

Experts say the tax increases will stifle the commercial property sector’s post-COVID recovery. Picture: Getty.

Mr King also noted the impact on the commercial sector.

“At a time when commercial CBD properties are struggling to find tenants, the increased taxes will put an extra burden on commercial real estate, which has already had to grapple with COVID-19 lockdowns throughout 2020,” he said.

Mr Pallas said the land tax rates apply to high-value land above $1.8 million in value.

“We’re not talking about somebody who’s struggling with a single property that they’re putting into the marketplace,” he said.

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