Property investors are clearly on the losing end following the release of Victoria’s state budget on Tuesday, with some investors potentially having to reconsider the future of their investments due to the introduction of a new tax and the closing of an existing loophole.
As expected, Victoria’s new vacant residential property tax targeted properties left unoccupied for six months or more. There was also the removal of a concession which allowed partners to transfer investment properties to one another tax-free.
Treasurer Tim Pallas unveiled the state budget with few surprises for the real estate sector, having announced most of the reforms during the Andrews government’s affordability package earlier this year.
The package included the anticipated $851m the government says it will provide to abolish stamp duty for first-home buyers on properties up to $600,000, as well as cuts to those up to $750,000. The Andrews government is also removing off-the-plan stamp-duty concessions for investors.
The state’s thriving property market clearly underpinned the budget, with $6.2bn in stamp duty and $2.4bn in land-tax revenue in the 2017-2018 budget expected to bolster the state’s bottom line. According to the Domain Group, more than $82.5bn was transacted via property deals in 2016, although a complete data set is still being collected and the final figure could be significantly higher.
Victoria’s new vacant residential property tax is expected to generate approximately $80m in revenue for the government over the next four years. It will come into effect on 1 January for properties left vacant this year.
Properties will be deemed vacant if they’re left unoccupied for six months or more in a calendar year, and will be taxed at 1% of the property’s capital improved value. Exceptions include deceased estates, holiday homes, and renovations.
The tax is intended to encourage investors to either put their properties on the rental market, or sell it off. Despite a surge in construction across Victoria, vacancy rates remain tight, suggesting that many properties are being kept empty, many by offshore property investors.
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