Key points:
- The stamp duty concession for off-the-plan properties in Victoria extended to investors and the price cap removed for all buyers
- Barriers to bringing projects to market still need to be addressed
- Early investor engagement is crucial to the development process
The announcement that the stamp duty concession for off-the-plan properties in Victoria has been extended to investors and the price cap removed for all buyers, albeit temporarily, has been largely welcomed by the sector, as offering a much-needed boost to development.
It’s the first positive tax news Victoria’s property development industry has had in some years, but with only a one-year window for buyers to access the concession, it risks having limited impact.
While it is a step in the right direction, the Government should be encouraged to move beyond a sugar hit for select developers and buyers, and look at other ways to address the real structural challenges undermining housing supply in our state.
The importance of early investor engagement
Since 1 July 2017 the off-the-plan stamp duty concession has only been available to eligible first home buyers for properties up to $750,000 and other principal place of residence buyers for properties up to $550,000. Since that date, the concession hasn’t been on offer to investors, so the same apartment can cost up to $25,000 more for an investor buying off-the-plan than for an owner occupier.
When competition is high — and there is plenty of incentive to bring new stock to market — that disparity might not matter, but confidence in the property sector remains poor.
A series of policy changes, land tax rises, vacant home taxes, foreign investor surcharges and new rental standards have combined to erode the attraction of property investment. In turn, that makes property development a riskier prospect.
No politician wins votes by courting property investors, but without them, owner occupiers can’t access stock in the areas they want to buy. A lot of faith is placed in the notion that every investor departing from the market opens the door for a first-home buyer — and that might have some truth in resales — but a large-scale apartment development can’t get out of the ground without them.
We need early investor engagement in the development process to underpin the financial viability of new projects, to increase rental stock in the market, and to pick up those units that for a variety of reasons are not an owner occupier’s first choice.
This latest policy is narrowly targeted and will most help market-ready projects where the pre-sales don’t yet meet levels needed to press go on construction.
Challenges and limitations of the new policy
Of course, with a scant 12 months to access this concession, it relies on the developer having approvals in place and a sales team that can move quickly in the short period the concession will apply.
It should help move off-the-plan sales but will not address other barriers to bringing projects to market – the need to stimulate new proposals and accelerate the approvals process.
It also won’t move constructed stock, which could have some interesting implications.
A property developer who has delivered supply to the market but still has unsold stock will not benefit from this extension, which only applies to incomplete, off-the-plan developments. And the same developer might see a decline in sales as investors divert to other opportunities, putting off an immediate purchase today to take advantage of a $25,000 saving on a comparable apartment down the track.
That means additional delays before the investment property reaches the rental market and more pain for those developers who have done the right thing by increasing supply, including a greater exposure to Vacant Residential Land Tax.
Then there are the investors who signed contracts in the days, weeks and months prior to the announcement who still need to stump up a much larger stamp duty amount when the apartment sale completes.
Had they held off signing until October 21, their purchase would have been thousands of dollars cheaper for no other reason than that it was the day of the announcement.
Unlike the introduction of a concession for a category of people (downsizers or pension holders, for example), all that has changed for the unlucky versus lucky investor is the date of the announced changes. At least some will be rueing that choice.
For market-ready developers the announcement will be good news and we would expect a rush of projects into sales to capitalise on the timing.
But expect a corresponding slump in off-the-plan sales once the arbitrary one-year concession period has ended, and we need to wait out a market distortion that could have outsized consequences across the sector.
There’s no doubt the Victorian Government is looking for palatable levers it can pull to stimulate housing supply. But the best stimulation for the sector is confidence — that policy settings are planned, well-considered and designed to reduce the risk of unintended consequences or distortions.
That requires certainty that any policy settings will be in place for more than one election cycle.
