Significant housing affordability policy initiatives were unveiled by the Victorian government over the weekend. Whilst the announcements have focused on the impact of these initiatives on first home buyers and the efforts to tackle housing affordability for these buyers, the proposals contain cause for concern for Victorian property investors and developers. A proposed stamp duty relief for first home buyers is packaged up with a selective abolition of the off-the-plan concession aimed to affect property investors. The lack of detail that surrounded the announcements of what are set to be significant changes in Victorian property taxes brings much uncertainty for a range of other transactions that may be inadvertently caught by the proposed arrangements.
Under the proposal, first home buyers will see the abolition of stamp duty for purchases up to $600,000 and a reduction in duty for purchases between $600,000 and $750,000. In parallel, the availability of the off-the-plan duty concession for property investors is changing. In a purported move to “re-balance the market between investors and home buyers” the off-the-plan concession will only be available to home buyers who reside in the property as their principal place of residence or who are eligible for the first home buyer stamp duty concession. Investors will therefore lose one of the most significant incentives to purchase off-the-plan.
The proposed abolition of the off-the-plan concession will have significant impact for Victorian property developers and existing structuring opportunities for development projects, potentially bringing real challenges to the established manner of project financing (which relies on local purchaser pre sales, who are generally investors and not first home buyers) and impacting the financial viability of residential projects in the future.
The changes are proposed to apply to contracts entered into from 1 July 2017. The exact details of the changes are yet to be understood pending release of the proposed legislation in the near future. The lack of clarity on the details of the proposed changes brings in question the implications on commercial or other non-residential developments in Victoria and the impact on investment activity in this State which has historically been very attractive due to the advantages of the off-the-plan concession.
The Government announcements also suggest an introduction of a new tax from 1 January 2018 on dwellings that are vacant for more than 6 months in a calendar year, with a tax rate of 1% of the capital improved value of the property.
Watch this space for further details on these significant developments in Victorian property taxes and how they will impact the industry and a range of property transactions.
This article was co-authored by Wesley O’Brien, Lawyer.