Real estate Australia: nine month warning for investors, savvy buyers guide to market downturn
Real estate investors have nine months to review their strategies until their taxes could increase almost tenfold.
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NSW residents who own investment property in Queensland have nine months to decide whether to stay invested north of the border, as from July 2023, the Queensland Government will begin taxing more interstate property investors.
“From 30 June 2023, when we calculate land tax, we will use the total value of your Australian land,” the Queensland government website advises.
Queensland treasurer Cameron Dick announced the policy last December.
The new land tax calculation will include the value of an investor’s real estate outside Queensland to determine their land tax bill on their Queensland investment.
The principal place of residence will be excluded from the calculation.
Dick claimed the tax closed a “loophole” as interstate investors intent on flipping property currently enjoyed a tax-free threshold for land holdings in Queensland worth up to $600,000.
Historically each state and territory has operated land tax regimes separately, so it has been a key strategy for property investors to spread their portfolio across state borders to minimise state-based tax and also to spread their portfolio risk.
The recent budget identified revenue rises of 5.2 per cent to land tax in 2021-22 and 10.6 per cent in 2022-23.
The new measures take effect in 2023-24, but when asked in parliament the treasurer declined to reveal the anticipated number of interstate investors who will be affected.
Clayton Utz has reviewed the impact, giving an example of an individual who currently owns one property in Queensland with a taxable value of $745,000 and one property in NSW with a value of $1 million. The individual will pay $1950 in land tax this financial year in Queensland but in the 2023/2024 financial year will pay $7169 in Queensland land tax.
Property owners must “assist” the Queensland Revenue Office in determining all other landholdings and failure to notify will be an offence.
Queensland has long been the destination of choice for interstate property investors.
A survey done a decade ago by a landlord insurer found 20 per cent of their landlords owned rental property outside of their home state, with half of them holding their investment in Queensland.
The policy could worsen the current rental housing shortage depending on how many of the state’s 576,000 landlords make for the exit. And those who invested with a plan to retire to the abode, might bring forward their plans to depart NSW.
Unlike the death duty abolition by Joh Bjelke-Petersen’s government that saw investment pour into Queensland after 1977, triggering other states and the Commonwealth to then follow suit, this tax revenue measure will see many investors sell their investments.
And in the future others will look to invest elsewhere. That is of course unless other states decide to also implement the scheme, as they did with payroll tax.
DOWNTURN PRESENTS OPPORTUNITIES FOR SAVVY BUYERS
The national property price downturn is already proving to be an opportunity to buy someone else’s dream at a more affordable price.
So far the biggest price fall I have seen across the east coast capital cities has been an 18 per cent price drop, some $207,000, for an Edgecliff apartment.
The one bedroom unit, which sold initially for $1,125,000 off the plan in 2019, plunged back to $918,000 after 202 days on market.
It sold through the office of the Luxe Listings Sydney cast member Gavin Rubinstein, but don’t count on seeing that tragedy unfold on our small screens.
In Melbourne, there was a 16 per cent loss taken in the Setia-built Marque complex on High Street, Prahran earlier this year.
The vendor pocketed $1.1m which was $203,000 less than its $1,303,000 off the plan price in 2017 of the two bedroom space. The first resale of off the plan apartments are typically problematic, so these sales are not necessarily indicative of the fresh headwinds in the latest downturn.
Overpriced Queensland property sold to naive southerners has long been like quicksand.
Recently the former rugby league star Nate Myles sold his three-bedroom Moorooka apartment for $499,000, six years after buying it new for $540,000.
The $41,000 drop reflects a 7.5 per cent drop in Brisbane’s south.
These sales actually come amid forecasts that apartments will weather the downturn better than houses given cheaper price points and the return of investors. The forecast makes sense as the price gap between the two housing types sits at an all-time-high. And any return of migration will also underpin apartment demand.
But like all forecasts it is highly circumstantial, and not necessarily applicable to individual buyers.
The most dramatic forecast came a few months back from Coolabah Capital whose modelling countenanced house prices could fall by more than 30 per cent if the Reserve Bank of Australia aggressively increased its cash rate from 0.10 per cent to 4.25 per cent.
The RBA has so far gone to 1.85 per cent, with unfolding circumstances now suggesting there won’t be such cash rate heights.
Coolabah is sticking with its 15 per cent to 25 per cent price decline forecast.
That is troubling because for that to be the median national house price fall then lots of markets, and individual sellers, will have incurred a much higher price impact.
Veronica Morgan, buyers agent and co-host of Foxtel’s Location Location Location Australia, recently noted economists rarely get predictions right.
“It seems that the more headline-friendly the prediction, the more reliable it is perceived to be by the public and the more likely it will ultimately be proven to be wrong,” Morgan said.
It is important to remember that prices within specific markets may be rising and falling, or just staying put.
The price you accept or pay is up to your due diligence.
Originally published as Real estate Australia: nine month warning for investors, savvy buyers guide to market downturn
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