Stamp duty will be abolished for first home buyers purchasing new or established properties for a price less than $600,000, while a stamp duty concession will apply on a sliding scale for properties between $600,000 and $750,000. For a property with a purchase price of $595,000 the stamp duty saving will be approximately $15,300. Subject to the legislation passing through Parliament, the date of effect of this change will be 1 July 2017.
The government has also announced that off-the-plan stamp duty concession will only continue to be available for those buyers who intend to live in the property or who are eligible for the first home buyer stamp duty concession. This means that investors will no longer be able to benefit from the off-the-plan concession and the amount of stamp duty payable on investment properties purchased off-the-plan will therefore significantly increase.
Currently, the off-the-plan duty concession applies to both residential and non-residential property. It is unclear at this stage whether the off-the-plan concession will continue to be available to investors who purchase non-residential property (such as commercial buildings, hotels and motels) once the announced changes come into effect. However, given the rationale behind the government’s changes is to increase housing affordability for first home buyers, we hope that the off-the-plan concession will remain for investors who purchase non-residential property.
For an investor buying an apartment off-the-plan for $650,000, the removal of the concession will increase the stamp duty cost by approximately $30,000. For domestic investors, it will cost approximately $10,000 more to buy the equivalent apartment in Victoria compared to New South Wales. In circumstances where the investor is a foreign purchaser, their total duty cost on the apartment will be approximately $80,000, which is approximately $30,000 more than the equivalent apartment in New South Wales and almost $40,000 more than the equivalent apartment in Queensland.
The date of effect of the off-the-plan concession change has not yet been announced by the government. It is also unclear whether it will be accompanied by transitional provisions that protect existing contracts that have not yet settled.
Vacant Residential Property Tax
From 1 January 2018, a Vacant Residential Property Tax will be imposed on owners who leave their properties vacant for more than six months in any calendar year. The tax rate will be 1% of the capital improved value (CIV) of the property. Accordingly, the owner of a vacant apartment with a CIV value of $500,000 will pay an additional $5,000 tax per annum.
The government’s stated purpose is to encourage owners of Melbourne’s inner and middle suburbs to rent their properties to tenants. Exceptions to the Vacant Residential Property Tax will be available for holiday homes, deceased estates and circumstances where the owner is temporarily overseas.
The new vacancy tax appears to be based on a similar Empty Homes Tax recently introduced in Vancouver Canada, which is also imposed at the rate of 1%.
It is unclear how the State Revenue Office (SRO) will police the vacancy period for the purposes of administering the new vacancy tax but the starting point is likely to be a self-assessment form that needs to be lodged with the SRO each year.
The government will also introduce a $50 million pilot scheme, HomesVic, from January 2018.
The scheme will provide eligible first home buyers with an opportunity to co-purchase a home with the government, allowing them to enter the property market sooner. Eligible applicants will include singles earning up to $75,000 and couples jointly earning up to $95,000. The scheme is aimed at first home buyers who, due to increasing rents, have been unable to save a large enough deposit to purchase a home.
The government will take up to a 25% equity share in the property, which means home buyers are able to purchase less of the property, allowing them to provide a smaller deposit (buyers must have a 5% deposit) and make smaller loan repayments. The pilot will be tested across the state, and when the properties are sold, HomesVic will recover its share of the equity.
Developers of residential property in Victoria should consider the impact the removal of the off-the-plan stamp duty concession for investment properties will have on their business models. Investors should also confirm the total amount of stamp duty they will need to pay before they proceed with the next acquisition.
On a more positive note, the abolition of stamp duty for first home buyer purchases less than $600,000, combined with the doubling of the First Home Owners Grant for buyers in regional Victoria, will create further opportunities for developers, particularly in Melbourne’s growth areas.