As new land tax bills hit more than 300,000 Victorian investors for the first time this month, property industry executives warn of an exodus of property owners from the Melbourne market that could lead to ‘an explosion in rental costs’.

New figures from CoreLogic shows that despite the state’s buoyant economy, the city has been the weakest mainland capital for investors since Covid-19, with price growth rising at only one third the rate of all other state capitals.

Investor activity is at half historical levels across the state, as land taxes in Victoria have now risen to the highest in the nation.

“The combination of new land taxes and falling prices is pushing investors to the brink … and the immediate results are soaring rents – this is only the beginning, it’s going to get a lot worse to the point rents will not be sustainable,” says John Bongiorno sales director at real estate group Marshall White.

The ALP government introduced a string of new property taxes last year, with the most controversial change – a widening of land taxes – hitting investors in recent months.

At a stroke, the state government – now led by Premier Jacinta Allen – brought small investors into the land tax net by reducing the tax-free threshold from $300,000 to $50,000.

The land tax changes were combined with new taxes on vacant land and Airbnb, but it is the imposition of a new tax on mum and dad investors which has ignited controversy.

Approximately 70 per cent of investors have one property – investors in this category were already struggling with higher rates and tight regulation when the new taxes were introduced.

Stuart Wemyss, a property adviser at ProSolution, said that many investors have reported that land tax now works out at 10 per cent of gross rental income: “This state land tax disproportionately impacts investors with smaller property holdings – they are paying much more than investors in other states.”

In fact, Queensland’s Labor government flirted with new land taxes in 2023 but dropped the idea after an outcry from local and interstate investors.

Bongiorno at Marshall White said: “We have a crisis here, and it has to be tackled – we need to move beyond politics – we have written to the Victorian housing minister Harriet Shing calling for a summit to find a breakthrough.”

“Rising land taxes have led to a decrease in the number of available rental properties due to many investors recently exiting the market – at the same, we are seeing a surge in demand. The situation urgently calls for comprehensive solutions to prevent what many believe could be an explosion on rental costs.”

Within the Victorian market, small investors who bought apartments are worst hit by the new tax. Apartment holders have already been struggling with very poor returns, as investors have not been able to keep up with inflation, Mr Wemyss said.

Consequently, property owners have no alternative but to pass on a rent increase, he added.

Nationwide, a recent survey from the Property Investment Professionals of Australia in September, found that the number of net individual investors in the market has almost halved since 2015 to be under 30,000.

Originally Published: James Kirby | Weekly Times Now | 13 March 2024

https://www.weeklytimesnow.com.au/agribusiness/breaking-news/victorian-land-tax-to-spur-an-explosion-in-rental-costs/news-story/42796284446e0dc49295603e590dd977?btr=540868b05e8c18f8999d66ddcf202731

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