Are you a property developer selling off-the-plan or looking to buy an investment property off-the-plan? Or own a property that is vacant? The changes could affect you too.
Over the weekend the Hon Daniel Andrews MP announced some significant changes to stamp duty which will affect Victorian landowners.
Whilst the headline issue that got the media attention was abolishing stamp duty for first home owners purchasing property under $600,000, property developers and property owners must be aware of the other changes that could affect their development projects or land holdings.
The other significant change that is not getting the same level of media coverage is the removal of the off-the-plan stamp duty concessions for purchasers buying investment properties.
The proposal includes stamp duty to be abolished for first home buyers when the purchase of a property is below $600,000. Where a property purchase price is between $600,000 and $750,000 there will also be a concession applied on a sliding scale, however this has not yet been detailed.
Subject to the passing of the legislation, the new measures will apply for contracts entered into from 1 July 2017.
The announcement has not advised how the change will affect the current scheme, which included both a first home owners’ grant (FHOG) for new homes under $750,000 as well as a first-home buyer reduction in duty.
The Government have advised as part of the changes that they will remove off-the-plan stamp duty concessions for purchasers buying investment properties. Whilst the change does not affect owner-occupiers, this change will have a significant cost for investors looking to purchase property of an off-the-plan property.
Developers will need to be mindful of this additional stamp duty costs to investors now that stamp duty concessions for off the plan sales are no longer available.
However, there will be another significant impact.
Whilst the benefit to purchasers involves a concessional stamp duty, there will be a range of pitfalls for the developer which may include:
Off the plan sales enabled developers to sell the majority of their stock prior to committing to construction contracts. Whilst pre-sales are critical, it also assists the developer to determine product mix and type;
Obtaining sufficient qualifying pre-sales is essential for the developer to obtain funding for construction
In the sales process, timing is critical. An extended sales program will mean additional risks, additional holding costs etc.
With the change, investors may not see any benefit of purchasing off the plan and potentially having to wait in excess of 24 months for the completion of the project (or the sunset date), when they could buy the completed property with a shorter settlement period with the same stamp duty impact. Once again this will impact on the ability of developers to sign up pre-sales and to commence developments.
Another change announced is the imposition of a Vacant Residential Property Tax (VRPT) across inner and middle suburbs of Melbourne from 1 January 2018. This tax will levy a 1%p.a. tax on the capital improved value of the property, where the property is vacant for more than a total of six months in a calendar year. The aim of this tax is to encourage property owners to either make them available for rent, or to put them up for sale.
Recognising that there is some legitimate reasons for having a vacant property, the Government have advised that there will be some exemptions, including for such properties such as holiday homes, a city apartment for work purposes, properties in deceased estates and certain scenarios where the Victorian owner are temporarily overseas.
The new proposed tax will be self-reporting, therefore owners will be required to notify the SRO of any vacant properties they own and if they are eligible for any exemption.
It is not clear what revenue is intended to be collected from this new tax. Property owners should be aware that mechanisms for identifying vacant properties could include review of power and water usage.
Whilst the Government have announced these changes, it has raised many questions as to how the changes will be managed. For example:
Will all stamp duty changes apply from 1 July 2017, subject to the passing of legislation?
Will there continue to be a FHOG for qualifying first home owners as well as the change to stamp duty?
Will the responsibility be on a developer to collate information from purchasers as to their intention to be an owner occupier versus an investor upon completion of off-the-plan sales concession forms?
What is the definition of ‘inner and middle suburbs’ of Melbourne? Will this create separate boundaries or will it be governed by municipal councils?
Watch this space for further updates once the Government release further information, including the relevant legislation that will need to be passed to enact the changes.
Should you wish to discuss how these changes might affect you, please contact Daren McDonald on the details below.
Partner, Business and Private Client Advisory
T +61 3 8635 1979