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Queensland’s new land tax rule will not take effect until the middle of next year, but property investors Peter and Joanna Meek are not waiting around.
The couple own multiple properties across different states but has decided to sell two of their Queensland rental properties out of concern that the rule, along with recent tenancy reforms, will put their investments at risk.
“We have three rental properties in Queensland; we’ve already sold one, and we’re in the process of selling another,” Mr Meek said. “We’re planning to move into the last property as we’re unable to find a decent rental, so that’s three rentals off the market already.”
Mr Meek said the recent changes to Queensland’s tenancy laws, which included removing the right of the landlord to end a periodic tenancy by simply providing a notice, along with allowing tenants to have pets and make minor alterations to the rental property, were concerning.
“With all the tenancy reforms happening in Queensland and with the land tax rule, it has become very difficult to be a landlord,” he said.
“You just lose confidence that there won’t be more changes. Who’s to say when the rental caps will come on? You basically lose a lot of money as an investor and this is our pension fund. We can’t afford to take that risk.
“So we figured, we’ll sell the two Queensland properties because we think that’s going to be a safer option for us in the future, and we won’t be investing there anymore.”
The Meeks are part of the growing number of landlords fleeing the Queensland market.
A poll by Property Investment Professionals of Australia (PIPA) found that nearly one in five investors were planning to sell a property or more in the next 12 months, with many doing so to avoid Queensland’s new land tax rule.
The land tax law allows the state government to use the total value of the investor’s land holdings, including interstate properties, in calculating the land tax rate applied to the Queensland component of the landlord’s portfolio.
But many landlords are also cashing out to take advantage of the rapid growth in prices during the pandemic.
Data from CoreLogic shows since the start of the year, the number of residential ex-rental listings jumped by 34.1 per cent to 12,131, which accounted for 31.2 per cent of all new listings nationwide.
Eliza Owen, CoreLogic Australia head of research, said a higher-than-average volume of investment properties was being listed for sale than in previous years.
“Investors were likely responding to peak capital gains through the cycle, where even recent home buyers stood to make substantial nominal gains,” Ms Owen said.
“The process of these properties being listed and transacted may have meant tenants needed to vacate and find somewhere else to live.
“If investors sell to first home buyers, then technically this can have the effect of reducing one unit of supply and demand in the rental market, but in reality the process might not be that smooth. Renters aren’t always ready to buy as soon as an investment property comes up for sale.”
SQM Research managing director Louis Christopher said the rental supply crunch would worsen as a result of the state government’s tenancy and tax reforms.
“I fear it will get worse for tenants as the scarce supply pushes rents higher,” Mr Christopher said. “But the proposed rental freeze and the new land tax rule will not solve the problem. It will only encourage landlords to walk away and strip the market of more rental supply.”
Rental market headache
Rental listings have fallen sharply in the past 12 months, plummeting by 47.8 per cent in Melbourne and by 37.6 per cent in Sydney according to SQM Research data.
The number of vacant rental homes slumped by 32.3 per cent in Brisbane, was down by 24 per cent in Adelaide, fell by 23.4 per cent in Perth and dropped 30.9 per cent nationwide.
The vacancy rate nationwide has plunged to 0.9 per cent, its lowest level in 16 years.
Margaret Lomas, founder of Destiny Financial Solutions, a property investment advisory, said many investors had left the market in the past few years because of unfavourable regulations.
“Firstly, depreciation claims were cut back, then, interest rates for investment loans crept higher than owner-occupier loans,” Ms Lomas said.
“Next came state decisions – such as the Queensland land tax changes and their harsh tenancy reforms, making it difficult for investors.”
Tenancy reforms were necessary because of the inevitability of bad landlords offering poor-quality housing and imposing harsh conditions, she said.
“However, some of the reforms have thrown the baby out with the bathwater, making property investing unattractive,” Ms Lomas said. “I think some of them have gone too far.”
Ms Lomas said it would take a lot of supply, some relaxation of tenancy laws, or some incentives to landlords to make the rental crisis go away.
“We need upfront tax incentives for investors who add to supply via new builds, where the benefit doesn’t go to the developer, to entice them back” she said.
“The trouble is, many of the so-called ‘incentives’ to invest in property, such as the affordable housing schemes like National Rental Affordability Scheme (NRAS), have in the past, been targeted at developers, who then profit from these ‘schemes’ while the problem isn’t really addressed.
“We also need less onerous laws so that landlords don’t potentially get stuck with bad tenants that they cannot move on and a solid review of land tax to make it fairer, and more consistent across borders.”
Originally Published: Nila Sweeney | Financial Review | 25 September 2022