Property tax trapped as investors scramble for the exits

As legislation for a second wave of property tax hikes gets stalled in the Victorian parliament, investors are already quitting the market.

Victorian property investors, braced for a second set of tax hikes inside a year, have been given a momentary relief as the Allan government has been forced by the Greens to stall the legislation.

With the Greens still pushing for rent freeze legislation, Victoria is already the weakest state in terms of price rises and it also has the highest portion of investors selling out.

The Victorian government had kicked off the property tax changes in its budget last May, and then widened the tax net to include more investors when a vacant residential land tax was extended beyond the inner city to include the entire state. The tax will impact investors and holiday home owners from next January.

In recent times the Victorian government has also introduced a windfall gains tax for property developers and doubled the tax on absentee buyers from 2 per cent to 4 per cent, along with hitting the short-term rental market with a tax of 7.5 per cent on annual revenue.

According to Irina Tan of Pitcher Partners: “It is no exaggeration to describe the proposed changes to Victoria’s land tax regime as a seismic shift in the way system currently operates that will impact anyone who buys or sells land.”

Victoria’s Premier Jacinta Allen. Picture: Alan Barber

The proposed changes have also been slammed as ham-fisted and unlikely to be effective. Lawyers at Russell Kennedy describe it as “an odd policy initiative which does not seem to meet the brief as to consumer protection”.

But it is the unexpected expansion of the vacant land tax that appears to have triggered widespread frustration across the property sector.

Under the terms of the plan, all owners of a second property beyond the family home in Victoria will face a tax of $975 plus 0.1 per cent with a $50,000 threshold.

The tax must be paid unless the owner ha lived in the property for a minimum of four weeks each year or leased the house for at least six months.

Sale statistics show property owners have already been quitting across Victoria. In fact, the percentage of new sales that are driven by investors is running at up to twice national levels. In the coming months holiday home owners are expected to join the wave of selling.

Victorian Real estate agents also report a lift in the number of sellers trying to add property tax liabilities to the sales price – under new state vendor rules this will soon be prohibited.

The Real Institute Of Victoria reports that one in four Melbourne rental providers have sold their properties over the past 12 months.

“Investors are fleeing and looking at other states or alternative investment vehicles,” Quentin Kilian, the CEO of the Real Estate Institute of Victoria, told The Australian.

“Each time a new tax or a new regulation is introduced it beats confidence out of one of the state’s most important economic contributors,” he said.

While Melbourne remains the top spot for new immigrants, the city has now got a rock-bottom vacancy rate of near 1 per cent, prompting industry analysts to suggest rental prices will rise further.

The Victorian parliament resumes on November 14, when it is expected negotiations will resume around the new taxes.