Interest rates to rise by 0.2% in NSW

[Peter 14.7]

Hi All

Was thinking that the new NSW land tax and worked this out. Invite your comments.

OK, Land Tax is 0.4% for majority of IP investors.

So on the assumption of say value of land being half the value of the property (i.e. if the house if worth 300K then land value if 150K) the new tax is equal to a 0.2% rate rise for all IP owners.

But it gets better...

Even if the investor owns the property outright (pays out the bank loan) he/she can never get rid of this 0.2%.

and....

Instead on paying interest on a fixed capital that does not go up when market rises (the golden reason to invest in property) this 0.2% rate's capital base actually increases forever more.

So I wonder what the economists out there think about the fact rates have rise not O.5% but 0.7% for the most expensive IP market in OZ? Will this have the same effect of a 0.2%? or more? being a change in mindset?

Regards, Peter 147

[BV]

Hi Peter,

I am not an economist but I think most Landlords will try to pass
this cost on to their tenants.

Its a little hard to do this in some Sydney areas atm,
but wait 6-12 months and you will see.

The FHOG and the stamp duty exemption is currently helping
some tenants buy their own place, but house prices will increase
further and will make it harder for other tenants to do the same.

This and the fact that the returns are low and that the govnt has
put disincentives in place for investors will stop new developments
from going ahead and that will probably be translated into a
shortage of rental properties.

As a result the rents will have to rise sharply.
Rents started recovering about 6 months ago
and will increase even more as Sydney population is going up
and more people have no other choice other than rent.

http://www.smh.com.au/articles/2003/11/16/1068917671448.html?from=storyrhs

[Peter 14.7]

HI BV

Good point but if more people buy First Homes would not most of them already be in the rental market and if so less demand will help keep rents low for a bit longer.

I still see lots of unit stock coming into the Sydney market that will take 12 to 18 months to even finish construction.

regards Peter 147

[geoffw]

On your figures, if you had three properties, your land tax would drop.

Before- land value $450K, land tax at 1.4% payable on threshold over $320K- $1820 payable.

After- .4% payable on $450K- $1800 payable.

(More properties, or more lands value, the improvement is better).

I have one property with a land value of $220K, which is held within a trust. So even though I would pay little tax for it if privately held (exempton would apply to most of it) I pay 1.4% because it is within a trust. Now I will pay .4% on that- saving $2.2K- though I will now pay something on my privately held property.

I suspect then that this tax will hit the little landlords most- those with one or two properties, and people who have not heard of trusts.

If you just try to increase rent to cover extra costs, you will lose tenants and have longer vacancies.

[Mark_B]

My view is that it will all come out in the wash - especially since all properties available for rent have to be non-owner occupied and hence IP's.

It will simply be another cost (along with the new stamp duty) of doing business in NSW.

Some may try and speculate how much of these new costs are able to be passed onto tenants / buyers and how much is borne by landlords / vendors. In reality that would be a futile exercise other than for in the interim period for after that it will be absorbed by the market in a manner continuously determined by demand and supply.

Apologies for not being able to provide a more definitive answer, but I cant see any simple answer to offer.

MB