Earlier this month the Victorian Government moved to abolish stamp duty for first home buyers for purchases below $600,000, in an effort to help around 25,000 Victorians find their first home.
[Related article: First Home Stamp Duty Package A Major Step Forward For Victoria]
However, some believe that the announcement may affect the industry more than expected.
Investorist CEO Jon Ellis said providing concessions on existing dwellings does nothing for the jobs and growth in Victoria and removing stamp duty concessions on off-the-plan Victorian investment property only serves to remove one of Victoria’s key advantages over other states.
“This is a simply crazy announcement,” he said.
“Apartment developers will be fuming about this news. It will now make a slow market even slower as investors start looking at other asset classes, impacting on the employment and other economic benefits that large construction projects deliver. Alternative asset classes such as house & land could become more appealing, because if you buy land and build on it, you only pay stamp duty on the land component.
“The investor market accounts for a large percentage of off-the- plan purchases – almost 70% – and the stamp duty concession in Victoria is a big saving for those entering into an off-the-plan contract. For a property valued at $500,000 this is a potential saving of $20,000.”
Mr Ellis said those who sell properties to investors, such as project marketers locally and globally will probably find house & land sales easier and more appealing.
“It will also level out the playing field for other states. For example Queensland and NSW don’t offer stamp duty concessions for off-the-plan purchases, so it now makes price points more of a discussion for comparison.
Ramifications in Victoria?
“The Andrews government claims to care about “hard working” Victorians; do they not class carpenters, crane drivers, plasterers, electricians, painters; everyone involved in the construction of Melbourne’s apartment buildings as “hard working” Victorians? Every decision this government is making appears to be designed to put these people out of work,” Mr Ellis said.
“I also think we’ll see a reduction in the supply of apartments beginning quite soon, as most projects are marketed well in advance of their construction. This will serve to push apartment prices up even more and potentially have the same effect on the rental market – key issues the government was attempting to address.
“If I’m correct in what I’ve predicted, the stamp duty decision will have the opposite effect to making property more affordable for first home buyers.
“Pushing prices higher (due to reduced supply) only pushes first-home buyers dreams further away from being realised.”
Mr Ellis said he doesn’t think the decision will make prices of off-the-plan stock lower, but rather will have the opposite effect pushing prices even higher.
“Firstly there is the stamp duty slug adding to the price, then a likely reduction in sales rates and the inevitable slow down in supply. It won’t make delivering the accommodation we require in Victoria any easier at all.
“We have already slugged foreign buyers with increased stamp duty. Locally, the stamp duty concessions made Victoria very appealing from an investment point of view compared to property in other states.”
Based on his own experience dealings with Chinese buyers, Mr Ellis said taxes aren’t as high on the checklist of priorities in comparison to location, price point, amenity, etc. but Victoria is certainly likely to lose market share to other states.
When asked if he has ever seen Government incentives like this work to help first home buyers get into the market, Mr Ellis responded, “Unfortunately, no.”
“In 2004 when the Howard government introduced the First Home Owner’s Scheme (FHOS), which provided a grant of $7,000 further boosted to $14,000 for new builds, and later when the Rudd government introduced the First Home Owner Boost for the same amounts in 2008, we saw house prices jump significantly – much more than the value of the grants.
“When buyers have to spend less on property taxes, they can borrow more, they bid higher at auctions and therefore all prices get pushed up as a result.
“There is nothing to indicate that this won’t happen again to Victorian property prices, especially for sub $600,000 properties,” he said.