The Victorian Government has announced changes to the stamp duty landscape as it applies to first home owners with targeted measures for investors of off-the plan properties and the introduction of a new tax for `vacant' dwellings. In addition, it has introduced two new `shared equity' programs that aim to assist first home owners get into the property market. The changes come off the back of recently announced initiatives by the Victorian Government to address housing affordability which include, amongst other things, a $1bn Social Housing Growth Fund and the provision of significantly increased financial capacity to the community housing sector (in the form of a $1bn loan guarantee facility and a $100m loan facility) aimed at increasing the stock of social housing and improving the plight of those less fortunate. The new tax measures, together with the `shared equity' programs, continue the Government's initiative to improve housing affordability in Victoria. Although it is clear that the `winners' resulting from the tax changes are local first home buyers, investors, particularly foreign investors, in the Victorian property market will face a higher cost.
The Victorian Government has made a number of State tax announcements coinciding with further measures to deal with housing affordability in Victoria. Whilst the tax changes will be welcomed by first home buyers, investors of off-the-plan properties and those who leave their properties vacant may not be as fortunate. The Victorian Government announced the following measures will be introduced (some of which will take effect from 1 July 2017 whilst others will take effect from 1 January 2018):
First Home Buyers the `winners'
From 1 July 2017, stamp duty is abolished for first home buyers with property purchases below the value of $600,000. A tapered discount will apply for first home buyers who purchase property valued between $600,000 and $750,000. This exemption will apply to both new and existing homes.
Off-the-plan concession removed for investors
In a move that the Government refers to as "re-balancing the market between investors and home owners", the Government will remove the off-the-plan concession for investment property acquired under contracts entered into from 1 July 2017. As a result, the concession will only be available for those intending to live in the property. The off-the-plan concession, which is particularly prevalent in the sale of apartments, provides a stamp duty saving for those buying land where the stamp duty is based on the value of the land before construction begins. Investors looking to purchase in the Victorian property market from 1 July 2017 will need to factor in a greater stamp duty cost.
For foreign purchasers, the removal of the off-the-plan concession for investments follows the recent foreign purchaser stamp duty surcharge, which saw a watering down of the off-the plan concession for foreign investors who have to bear the full 7 per cent additional stamp duty surcharge despite entering into an off-the plan contract. These new measures effectively remove any residual benefit of the off-theplan concession for foreign investors (and other investors alike).
Vacant Residential Property Tax for owners of vacant property
From 1 January 2018, the Government announced the introduction of a Vacant Residential Property Tax (VRPT) to address the number of properties being left empty across the inner and middle suburbs of Melbourne. The Government stated that "under the changes, owners who unreasonably leave these properties vacant will instead be encouraged to make them available for either purchase or rent".
The VRPT will be levied at 1 per cent of the capital improved value of the taxable property and will be levied on dwellings that are vacant for more than a total of six months in a calendar year. For example, if the property had a capital improved value of $1m, the amount paid will be $10,000. It will be payable on a calendar year basis (similar to the land tax regime in Victoria).
In the first instance, the new measures will be `self-reporting', in that owners of vacant residential land will be required to notify the Victorian State Revenue Office (VSRO) of any vacant property. While the measures are `self-reporting', taxpayers should note that the VSRO is likely to use publicly available information to undertake its own investigation over properties that it suspects are vacant and ultimately pursue enforcement action against owners of `vacant' dwellings that do not comply.
A number of exemptions will be available to ensure that those with legitimate reasons for having a home vacant will not be hit with the tax (e.g. homes owned by Victorians who are temporarily overseas, deceased estates, holiday homes).
Shared Equity Schemes HomesVic and Buy Assist
Two new "shared equity" schemes were also announced. The HomesVic scheme will target first home buyers who are able to meet regular mortgage payments but have not been able to save a deposit. Under the scheme, HomesVic will co-purchase up to 400 homes taking an equity stake of up to 25 per cent. This results in first home buyers needing a smaller deposit i.e. 5 per cent and a smaller loan. Eligibility criteria will apply with HomesVic recovering its share of the equity when the property is sold.
The Government will also contribute $5m to a national, community sector, shared equity scheme, Buy Assist, which will deliver an additional 100 shared equity homes and help low to medium income households get into the property market. The Government is also set to give first home buyers priority in government-led urban renewal developments, with at least 10 per cent of all properties allocated to first home buyers.
The Victorian Government's push to address Victoria's housing affordability issues necessarily results in some winners and some losers.
The winners should be those in the first home buyer market (and following the recent Social Housing Growth Fund measures, those in need of social housing).
Naturally, the measures must be paid for. In our view, foreign purchasers stand to lose the most from these measures. The benefit of the off-the-plan concession, which was already watered down under the foreign purchaser surcharge measures, is now effectively gone for foreign investors. Moreover, foreign investors are now also likely to bear the brunt of the VRPT (not forgetting that foreign owners may already be bearing the brunt of the additional 1.5 per cent `absentee owner' land tax surcharge, which was introduced at the same time as the foreign purchaser stamp duty surcharge).