Property investors have nowhere to run as NSW follows Vic with a land tax move

NSW is set to impose higher land tax costs for property owners – a move that has already helped flatten price growth in Victoria.

NSW is set to impose higher land tax costs for property owners, a move that has already helped flatten price growth in Victoria. Picture: Supplied

Sydney’s prime position as the nation’s hottest property investment market is now in jeopardy as planned land tax changes have been sharply criticised by industry figures who suggest the measures will drive investors away from the city.

The NSW state budget is to freeze land tax thresholds in the state – a move that will bring in an estimated $1.5bn over the next four years. The formula of exploiting land tax thresholds was started by the state Labor government in Victoria, where wider plans are expected to bring in $4.7bn.

Property investors are now being targeted in the three key states, as Queensland tried and failed a new land tax scheme two years ago – the looming Queensland state election has meant any further plans are temporarily under wraps.

Investors are much more willing to invest interstate in recent times thanks to digital transactions, but they are now being boxed out as a de facto nationwide property tax campaign within the states is clearly underway.

“This has come out of nowhere,” says Nicola McDougall of the Property Owner Investment Association. “It’s going to drive rents higher, and it’s going to force investors away, just like it did in Melbourne- I really wonder does the NSW state governments understand this?”

With strong price growth, NSW has been favoured by investors until now – the percentage of loans going to investors in NSW is the highest in Australia at 40 per cent, while Victoria is the lowest of the mainland states with a figure of 30 per cent.

Despite strong price growth in most states -except Victoria – property investors have been struggling to stay in the market.

Higher property tax costs coupled with higher financing charges means those investors who are at the margins are increasingly throwing in the towel and getting out.

Property Council NSW’s Katie Stevenson isn’t impressed.

“This is nothing more than a stealth tax that will serve only to drive investors out of the market and potentially drive significant increases to both commercial and residential rental costs.

The removal of annual land tax indexation will broaden the base of NSW land tax, increasing both the number of owners subject to NSW land tax each year and the amount they must pay.”

The NSW measure aims to target owners of more than one property – the key measure is that the tax-free threshold for land tax will be frozen at the current level of $1.075m – and it will not be indexed in the future. This policy ploy is identical to some of the recent federal wealth tax measures, particularly the new Super tax, which is similarly framed with no indexing set for the future – even though inflation is currently running near 4 per cent.

In freezing the threshold, the NSW government will gradually bring additional investors and holiday home owners into the net. In Victoria, the land tax was more aggressive reducing the tax-free threshold from $300,000 to a rock bottom $50,000 – in Queensland, the rate remains unchanged at $600,000 for many years.

Sydney-based buyer’s advocate Kitty Parker says it will dent the market.

“What you are getting here is a steady trend in closing off markets for investors – land tax is an archaic tax, the latest changes will make the Sydney market immediately less attractive to investors.”

In the 12 months to mid-June, Sydney house prices rose 7.4 per cent, tracking broadly in line with the nationwide lift of 8.3 per cent – Melbourne was the weakest mainland market with growth of just 1.8 per cent.