Land tax could cause South Australia housing market crash

The proposed land tax could send South Australian house prices tumbling — as one SA builder prepares to abandon display homes due to fears of an almost $80,000 annual fee hike.

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One of South Australia’s leading home builders warns the Government’s proposed land tax changes could send house prices tumbling, as another business prepares to abandon display homes, fearing an almost $80,000 annual fee hike.

The businesses have publicly aired their fears about land tax for the first time as the State Government continues consultation over its controversial reforms, set to be detailed further in coming weeks.

Fairmont Homes marketing manager Graeme Baird told The Advertiser that the Government’s aggregation changes – that would force people to pay land tax on all properties, rather than minimising their bill by listing them in separate ownership structures – would be unaffordable for many investors and force a bulk sell-off.

“To flood the market with existing homes would impact greatly on median house prices and valuations,” he said.

Mr Baird said a market flooded with cheap properties could prompt people who would otherwise decide to build to buy instead, denting South Australia’s home building market.

He said SA had developed “great interest” in property investment from interstate and it was crucial the state maintained its competitive advantage.

“The predicted $40 million generated (by aggregation) is important to the Budget, but the cost to the economy could be far greater if our industry suffers a downturn due to a loss of confidence,” Mr Baird said.

“Adelaide must maintain a competitive advantage in housing when compared to Melbourne and Sydney.”

In a letter seen by The Advertiser, Format Homes managing director Frank Formato said his annual land tax bill could surge from $26,000 to $193,000 if aggregation was applied – with $77,000 of that just from display homes or land earmarked for them.

He said the increase was “a big penalty” for transient display homes, which he said was a tool needed to keep Format Homes afloat.

“Format Homes is a small builder, yet there are many larger builders who suffer huge extra costs due to (aggregation),” he said.

“By implementing this tax as contemplated our own Government will be contributing to more business failures and be responsible for such a negative impact on our community.”

The aggregation changes are forecast to raise $40 million a year, but the property sector says significantly more revenue is likely to be collected than is currently predicted.

Modelling released by the Australian Institute of Conveyancers, prepared by Adelaide firm Stevens Partners, shows a couple who own seven properties through different ownership structures, could have their annual land tax bill increase from $565 to $51,650.

Treasurer Rob Lucas said people should wait to see the Government’s draft legislation, set to go out for public consultation by the end of the month, before worrying about the impact the changes could have on their business.

“We believe some of the concerns are based on what won’t be the case when the Government presents the Bill,” he said.

Mr Lucas stressed annual land tax revenues would be lower under the proposal because of a planned decrease in the top tax bracket, as well as a rise in the minimum threshold to $450,000.

The issue of land tax continues to cause divisions inside the Liberal Party, but is understood to have not come up during the party’s annual general meeting on Saturday.

Property Council executive director Daniel Gannon said the impact of the “risky land tax changes” could be worse than a slew of home builders hitting the wall.

“There could be a tsunami of proud home builders biting the dust unless the Premier scraps his plans to take a wrecking ball to South Australia’s property sector,” he said.

Land tax – The end game

Apocalyptic warnings about the state’s demise because of onerous land tax aggregation are obscuring focus on the end result.

There is a strong expectation among well-connected industry and political figures that Premier Steven Marshall and Treasurer Rob Lucas will deliver an “everyone’s a winner” result, despite the current angst.

This is expected to result in slashing the rate, delivering deeper and quicker savings for those paying the tax but with aggregation delivering the $40 million per year promised in the Budget.

Whether this is a magic pudding that cannot be baked remains to be seen, particularly given the impact of valuation changes.

But it is important to remember that the State Government and lobby groups, such as the Property Council and Business SA, agree on one crucial fact. This is that the number and extent of those affected is not known.

Complainants are giving Treasury helpful data, which doubtless is being used to assess the final take and to adjust the rate before legislation is introduced next month.