Property investors hit by land tax change plan to sell or pass on costs to renters

Property investors affected by a change to Queensland’s land tax are considering selling out of the market or passing on the extra cost to renters, industry groups say.

Anyone who owns investment property in Queensland will soon have the total value of their Australian investment land assessed for land tax purposes. The move to include interstate holdings will start from June 30 next year, a move the state opposition branded “unworkable”.

Investors with property in Queensland and elsewhere could face higher land tax bills from next year.Credit: Penny Stephens

Other experts say the change would rebalance an overheated property market that favours investors over owner-occupiers and renters, while the state government has called the reform “prudent”.

It comes as the state’s capital is in the midst of an escalating rental crisis where rents jumped 13.3 per cent in the year to August on CoreLogic data and the vacancy rate is 1 per cent. The median household would spend 29.3 per cent of their income to service a new lease, the research house said.

The Queensland government plans to charge land tax on property investors in the state who own more than $600,000 in landholdings across the country and $350,000 for companies.

If an individual investor owns land in Queensland with a taxable value of $745,000 then they will only be charged $1950 in land tax this year regardless of other interstate investment properties they own.

But from July 2023, the same hypothetical investor, who also owns property in Victoria or NSW valued at $1,565,000, will be charged a higher rate of land tax to account for the total value of their landholdings of $2.31 million.

Their land tax bill will jump to $8422.

Property investor groups say the new land tax has come as a shock to investors around the country who own at least one investment property in Queensland, and some are already selling up.

Real Estate Institute of Australia president Hayden Groves said the body was anecdotally hearing of investors’ disquiet and his Fremantle agency has already been selling on behalf of investors.

Investor groups say the land tax change has come to a shock.Credit: Justin McManus

“An investor has instructed us to sell a rental property, because of his exposure. He resides in Queensland and has taxable assets in Queensland as well. As a result of that he has instructed us to sell his property,” Groves said.

“If you owned one property that was taxable in Queensland and you had another portfolio in Australia, well, I know what I would do. I would simply sell that asset in Queensland and that’s really bad news for renters,” he said.

Groves said the land tax has far-reaching implications and would deter property investment if other state governments decided to do the same as Queensland.

“As soon as you put more tax in the system then investors will look for more tax effective and less punitively taxed investments to put their money [into], they’ll put it into a business or a trust account that attracts a better yield,” he said.

“We think this would throw the balance out, it would throw the balance out from property investment and ultimately, it will be tenants who will be the losers from the Queensland government land tax.”

Property Investors Council of Australia chair Ben Kingsley said investors are in “shock” that a state government has changed its position on land tax that applies to retrospective purchases.

“Their second reaction is that it’s a tax grab. They’re quite frustrated and annoyed by the government for doing this. They’re thinking of selling their property in Queensland.”

He said investors were either selling out or passing the cost onto tenants because investors were facing higher costs of holding their property.

But The Australia Institute senior economist Matt Grudnoff said creating less favourable conditions for property investors is the aim of such a tax.

“At the moment in Australia we give enormous tax concessions to people who invest in property,” Grudnoff said.

“This has left a distortion in the property market, which has led to overinvestment and higher prices.

“If the state government taxes that and stops some of that distortion and brings it back to some sort of level playing field between owner-occupiers and investors then it’s only a good thing.”

Other experts say less competition from investors will help renters get into the property market as owner-occupiers.Credit: Rhett Wyman

He said investors cannot pass on their entire land tax bill increase to renters because there is a limit on how much tenants can afford to pay, adding that investors’ decisions to sell their properties are likely to result in more homeowners as tenants get the opportunity to buy a home.

“If landlords are selling their property because they don’t want to be in the market any more, and they’re better off, and renters are buying those homes because they’re better off, this seems like a good situation.”