The lowdown on Victoria’s new vacant property tax

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Victoria’s plan to raise $80m over four years by taxing vacant residential properties is likely to be the start of a push by the state to collect more revenue from property owners, said numerous industry insiders and experts.

The Andrews Labor government’s decision to levy a tax – initially set at 1% – on the capital value of properties left vacant for six months or longer would most likely ward off foreign investors who don’t wish to rent out their properties but hold on to them as long-term wealth stores, said Craig Whatman, executive director of Pitcher Partners.

“One per cent could well just be the starting point for the first one or two years,” said Whatman. “The stamp duty surcharge for foreign purchasers went from 3 per cent to 7 per cent after the first 12 months and the land tax surcharge for foreign owners tripled from 0.5 per cent to 1.5 per cent in the same period.”

The tax is due to take effect on January 2018, and will apply to properties in Melbourne’s inner and middle suburbs. It’s also designed to be self-reporting: owners will be expected to inform the State Revenue Office about the status of their property when the tax becomes applicable.

To ensure compliance, a property’s dwelling occupancy status could be checked against utility usage. As many as 82,724 dwellings (or one-fifth of all investor-owned properties in Melbourne) lie empty, according to a study of 2014 water metre recordings by think tank Prosper Australia.

Far from being foolproof, this tactic can easily be foiled, said Charles Pittar, chief executive officer of Juwai.com, an international Chinese-language property portal.

“The Victorian government says it plans to enforce the tax by checking utility records to look for properties with very low usage. This tax's biggest accomplishment may be an income surge for Bunnings, as property owners buy faucet and electrical outlet timers that enable them to evade monitoring of their utility usage,” he said.

Pittar also warned that the new tax could scare away potential domestic and foreign investors due to growing uncertainties.

“The one-percent tax itself is not bad on its face, but there is a warning light blinking on the car dashboard …There is a gathering sense that Victoria is an unsafe place to invest. People are starting to believe it's a place where the rules constantly change — and in ways that will cost …money. So far, the impact has been minimal, but tipping points are only visible in hindsight. I hope Victoria never has reason to regret all its new property-market red tape.”

A drop in foreign investment could worsen the state’s housing affordability and housing supply crises.

“Investors —and especially foreign investors— have made possible new construction projects that have added hundreds of millions of dollars and tens of thousands of jobs to the local economy. Offshore investors have made possible the construction of tens of thousands of new homes for Victorian residents,” Pittar said. “Until the federal government ends negative gearing, there isn't anything of substance that the state government can do for first home buyers, apart from encouraging the foreign investment that makes new construction possible. Unfortunately, the state is taking exactly the opposite tack.”


Related stories:
How Property Investors Can Reduce The Taxation Burden
VIC Excerpt From The 2017 March Market Report

 

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