Beau built a property portfolio. Then he faced an unexpected cost

Property investor Beau Arfi built a portfolio of houses and apartments in Victoria, before an increase in state land tax increased his costs by thousands of dollars.

The land tax increase was a big hit, he said. “These sorts of things, they ... [aren’t] good for anybody.

Beau Arfi’s land tax bill on his investment properties has risen. Credit: Justin McManus

“The landlord, when they’ve got less disposable income, they could be a good landlord, but they might not have the rental income coming in to fix a lot of the small maintenance things that are coming through.”

Arfi is not alone – investors have been outspoken about their higher tax bills since the changes began early last year.

A proposal could change that. Property investors who offer their tenants a long-term lease should receive a discount on their land tax bill, the Real Estate Institute of Victoria says.

Discounts would increase with the length of the lease, under a proposal in the institute’s submission to the Victorian state budget.

A 10 per cent land tax discount is proposed for a three-year lease, 20 per cent for a five-year lease, 45 per cent for a 10-year lease and 60 per cent for a 15-year plus lease.

Over that time, under legislation, rent increases would be tethered to increases in CPI.

Similar to the commercial leasing model, renters in long-term leases would become responsible for limited reasonable maintenance, such as broken taps, while investors would keep responsibility for legislative structure and safety requirements.

Separately, the body proposes land tax concessions for investors who keep their properties in the long-term rental market for at least five years consecutively and do not switch to short-stay letting.

Land tax has risen in Victoria.Credit: Paul Jeffers

A 10 per cent discount would be offered after six years in the long-term rental market, 20 per cent at seven years, 30 per cent at eight years and so on.

Real Estate Institute of Victoria chief executive Kelly Ryan said higher land tax, along with interest rate increases and requests for rent reduction in lockdown, had affected the financial viability of investment properties, and some landlords were choosing to sell.

“In an ideal world, we would love to see land tax completely reduced in its own right,” she said.

“Failing that, then what we are trying to do is instigate initiatives that can continue to have the positivity in terms of encouraging investors to leave their properties in the property market for the long-term renters, to not go onto short-stay.”

Although long-term leases are possible now, Ryan said there was little awareness. Landlords were also concerned about committing to a long lease to a tenant who didn’t pay rent, she said.

“I just really want to make sure that those that currently have an investment property in Victoria stay,” she said.

For property investor Arfi – a former mortgage broker turned buyer’s agent who is chief executive of Maple Property Group and owns nine residential properties in Victoria and more in other states – such a change would be welcome.

“It definitely eases the burden, and it would be something that I would be open to, absolutely,” the 30-year-old said.

“It’s a really good thing if I can give a tenant more security in the property, that they’re going to be there for the long term.”

Brendan Coates, Grattan Institute housing and economic security program director, said a growing number of tenants would benefit from more secure tenure, but their needs might change.

“Longer-term leases can be really beneficial but it does depend a bit on the terms for the tenant if they want to break that lease early,” he said.

He said land tax was the most efficient tax, and offering concessions could risk the government having to raise more revenue through other taxes that imposed larger economic costs on the community, such as taxes on insurance, payroll taxes or stamp duty.

He thought another way to improve security of tenure could be narrowing the grounds on which landlords could evict tenants or requiring landlords to pay compensation to a tenant when, for example, they give a notice to vacate so the property can be sold.

Noel Lim, chief executive of Anika Legal, a legal service that helps renters, thought long-term leases could be part of the solution to housing insecurity but hoped renters would still be able to choose between a one-year or a longer-term lease.

He suggested that once a tenant was approved for a property, they could then choose their preferred lease term, which would also give certainty to the landlord.

“The level of anxiety that renters feel about their lease renewal is extreme,” he said, citing concerns about whether their rent would be put up, or whether they would have to leave if they requested repairs.

“Because renters are worried about losing their home they are not enforcing all of their other rental rights because they don’t want to rock the boat.”