A national land tax is comming!

[travelbug]

Bye the way, the review is not just about creating new streams of revenue. Half the idea is to (supposedly) simplify the tax system, so I would also expect to see some current taxes reduced or waived, as well.

Like when the GST was introduced?

I read it that way too. A change of tax not a double whammy.

10 people, 10 houses
3 people have mortgages, 3 people free hold, 4 are tenanted (owned by investors)
Taxes go up, the 3 with mortgages sell up, so now 7 tenanted, 3 freehold owners, still 10 houses

Why does the rent go up? Yes there are more tenants, but there is the same number of houses. I guess you could argue that the 3 that sold all might want to rent the nicest house on the market pushing up the rent on that one, but that then reduces demand for the others...

Your example assumes more investors (7 instead of 4) not less investors.
Investors don't make up the majority of sales but it will make a difference (as it did when negative gearing was cut in 1985). More people selling, less buyers, prices drop??? Then people buy again.

You can't discount rising population. More people need to rent but investors aren't buying so hence the shortage. A shortage always drives up prices. Simple demand and supply, like we are seeing now in Sydney. People need somewhere to live. If buyers aren't buying builders won't build. I'd like to know what % of OTP are bought buy investors. I'm assuming it's higher than OO.

 

[skater]

This tax would be even better if you could directly pass it to the tenant - lets face if everybody is paying why not the tenant also - like a poll tax in England.

Cheers

Bring it on!

 

[Aaron Sice]

as long as they abolish local govt "rates" along with the new tax, then fine. i'm all for a more national standardised system.

currently in WA we pay EXORBITANT local govt fees and charges - on top of taxes.

 

[pully]

i agree this is all speculation at this stage, so not yet worth worrying about.

not sure i can see the states agreeing to the loss of land tax as a state based tax?

i am interested to see what the review is proposing for CGT too.
regards.

 

[marg4000]

The rent achievable is always a product of supply and demand, often with little relation to the increase or decrease in holding costs.

Daniel is quite correct to consider ALL factors in his decision to buy more IPs. He already has 2 so is not the complete amateur or scare-monger some posts here seem to suggest.

Rents do NOT go up necessarily just because expenses to the LL increase. The same way as there was no overall reductions in rent when interest rates plummeted to the lowest level in memory.

If rents go too high then people simply don't rent at that price. They move in with friends, back home, couch surf, find something they can afford. Then the higher priced rentals stay empty until the rent is reduced to a reasonable level.

We have owned IPs in the 1990s when rents stagnated for several years. To actually get a tenant there were various inducements - some I remember were one or two weeks rent-free, $500 towards moving expenses, free electricity for the first xxx months etc. As IPs became less attractive to investors property prices stagnated and even dropped, which meant more renters took the opportunity to purchase a PPOR.

Immigration is not new. Our population has been steadily increasing over the last 50-60 years, so the number of households has been increasing.

Among our immediate circle of friends there are 4 households that have chosen not to enter the rental market. In one case there are two adult kids(and their partners) who have moved back with mum and dad while they are taking 6 months to each build new homes. Another friend has her daughter and family doing the same thing. And in a fourth case the parents have moved to their holiday house and the son and his partner are living in the previous family home.

So do not automatically assume that an increase in costs can be immediately passed on. Maybe it can and maybe it can't.
Marg

 

[ianvestor]

Like when the GST was introduced?

Most people forget or don't realise that before GST (10%) we had Wholesale Sales Tax (22%).

 

[Witzl]

DO you mind providing an example?

We made around $80-100K in C.G. in the last 12 months, $50K of that on IP2 bought in dec 2008. If i had've let fear of the potential of some tax stop me from buying, i would forgone the opportunity to benefit from that capital growth.

I have to remind myself regularly that our properties this year made more money than i made in salary.

Why would you give that up because you are scared of a tax review that might cost you a few grand at most? As as others have said already - this is a complete tax REVIEW; looking at ways to simplify the tax system.... which means doing things like eliminating 4 taxes and replacing them with a simpler, single, universal tax.

Besides - it would take YEARS for the govt to change the tax system based on this review, which isnt even completed yet! So you have several years to make money on property and then when/IF the tax review goes through, decide if PI is still going to work for you.

If it wont - sell up, and reap the profits. Where's the harm in that?

However, if you sit paralysed by fear of this tax review, you will make ZERO money in that time frame. You lose in that situation.

 

[josko]

Rents not going up is a valid arguement here.

So many investors assume their rents will increase with inflation or costs.

This simply does not happen. There may be a handful of investors that are lucky enough to have the demand for rentals allowing them to adjust rents at a time when costs rise, but certainly rents do not not increase according to a landlord's costs.

If this were the case I'd put them all up right now!

On the subject of Land Tax.

No-one is happy with ANY Tax. The fact is we will simply come to except them and factor them as part of our costs and the next generation of investors will know no better OR there will be such a public outcry and backlash that they will be withdrawn like the last Land Tax NSW had.


Regards JO

 

[Neophyte]

Several things. A national land tax is not especially different to laws being changed at the state level.

IP owners will be fine, land tax of 1 or 2% of value will just result in increased rents. This is how it works in the US. Land tax is high, rent is high.

Secondly land tax is a way to encourage "productive" use of land. Land bankers will be screwed hard, that is part of the plan. People holding onto undeveloped land will have to pay for the privilege. The whole idea is to discourage those practices.

In the tax theory you can tax various things. Labor, capital or consumption are the main ones. Labor is covered by income tax. Consumption by the GST/sales tax/etc..

Capital is a complicated one because it can easily cross national borders. Therefore one way to tax capital (and by association the rich) is to tax land since it can't be moved to Bermuda for accounting purposes.

Finally the idea behind land tax is that one of the main reasons land increases in value is due to public spending not the brilliance of the owner. e.g. new train line to your suburb increases value of property by $50K. This large public expense primarily benefits (in an economic sense) the land owners since their properties rise in value (and also the rents).


Don't be too concerned about an increase in land tax. Rent is set by supply/demand of housing which is set by the ongoing holding costs which = land tax + (construction cost * interest rate) + other holding costs

Rent is always balanced against the ongoing holding cost of owning.

 

[ianvestor]

Secondly land tax is a way to encourage "productive" use of land. Land bankers will be screwed hard, that is part of the plan. People holding onto undeveloped land will have to pay for the privilege. The whole idea is to discourage those practices.

In Fortitude Valley, there is a huge block of land that's been vacant for at least 12 years, right in amongst shops and other buildings. It's just north of Radio Rentals on Wickham St. If anyone knows what the story is there, I'd be interested to hear it.

Also I heard that religious organisations are exempt from land tax, which is why somewhere like "Cathedral Place" stood empty and undeveloped for so many years.

 

[travelbug]

Most people forget or don't realise that before GST (10%) we had Wholesale Sales Tax (22%).

Yes but 20% wholesale equates to 10% retail (usually) as there is often 100% markup.

What I was referring to though was the promise of the removal of other taxes and duties.

 

[eggnog]

mate, don't you know. its a place to park your car for free

 

[Comper100]

Secondly land tax is a way to encourage "productive" use of land. Land bankers will be screwed hard, that is part of the plan. People holding onto undeveloped land will have to pay for the privilege. The whole idea is to discourage those practices.

So I guess landowners that are close to pockets of developed land will be "encouraged" to sell to developers and the like for new housing?
Would then in tern mean more new housing or would the land owners get round the huge potential tax bill some other way?

 

[ianvestor]

Yes but 20% wholesale equates to 10% retail (usually) as there is often 100% markup.

What I was referring to though was the promise of the removal of other taxes and duties.

Hence my main point which was the removal of WST at time of GST's introduction. I'm sure other taxes got removed at that point too, although I can't think which ones at the moment.

 

[DanielG]

The rent achievable is always a product of supply and demand, often with little relation to the increase or decrease in holding costs.

Daniel is quite correct to consider ALL factors in his decision to buy more IPs. He already has 2 so is not the complete amateur or scare-monger some posts here seem to suggest.

Rents do NOT go up necessarily just because expenses to the LL increase. The same way as there was no overall reductions in rent when interest rates plummeted to the lowest level in memory.

If rents go too high then people simply don't rent at that price. They move in with friends, back home, couch surf, find something they can afford. Then the higher priced rentals stay empty until the rent is reduced to a reasonable level.

We have owned IPs in the 1990s when rents stagnated for several years. To actually get a tenant there were various inducements - some I remember were one or two weeks rent-free, $500 towards moving expenses, free electricity for the first xxx months etc. As IPs became less attractive to investors property prices stagnated and even dropped, which meant more renters took the opportunity to purchase a PPOR.

Immigration is not new. Our population has been steadily increasing over the last 50-60 years, so the number of households has been increasing.

Among our immediate circle of friends there are 4 households that have chosen not to enter the rental market. In one case there are two adult kids(and their partners) who have moved back with mum and dad while they are taking 6 months to each build new homes. Another friend has her daughter and family doing the same thing. And in a fourth case the parents have moved to their holiday house and the son and his partner are living in the previous family home.

So do not automatically assume that an increase in costs can be immediately passed on. Maybe it can and maybe it can't.
Marg

Thank you! Finally someone who actually gets it.

 

[DanielG]

We made around $80-100K in C.G. in the last 12 months, $50K of that on IP2 bought in dec 2008. If i had've let fear of the potential of some tax stop me from buying, i would forgone the opportunity to benefit from that capital growth.

I have to remind myself regularly that our properties this year made more money than i made in salary.

Why would you give that up because you are scared of a tax review that might cost you a few grand at most? As as others have said already - this is a complete tax REVIEW; looking at ways to simplify the tax system.... which means doing things like eliminating 4 taxes and replacing them with a simpler, single, universal tax.

Besides - it would take YEARS for the govt to change the tax system based on this review, which isnt even completed yet! So you have several years to make money on property and then when/IF the tax review goes through, decide if PI is still going to work for you.

If it wont - sell up, and reap the profits. Where's the harm in that?

However, if you sit paralysed by fear of this tax review, you will make ZERO money in that time frame. You lose in that situation.

I find many of your comments here quite amusing considering recent examples in the last 10 years. Let's break it down:

1. We made around $80-100K in C.G. in the last 12 months, $50K of that on IP2 bought in dec 2008. If i had've let fear of the potential of some tax stop me from buying, i would forgone the opportunity to benefit from that capital growth.

Well congratulations. You have bought well and have earned the rewards. Just because your property went up does not mean that is the same for everyone.

2. Why would you give that up because you are scared of a tax review that might cost you a few grand at most?

Really? Just a few grand? Have you seen the kind of taxes the Americans pay under the same scheme proposed? Although it may even start out as a few grand, the government will always increase these rates.

3. As as others have said already - this is a complete tax REVIEW; looking at ways to simplify the tax system.... which means doing things like eliminating 4 taxes and replacing them with a simpler, single, universal tax.

Ahuh. Just like the GST was suppose to eliminate many of the state taxes. Has it? NO!

4. Besides - it would take YEARS for the govt to change the tax system based on this review, which isnt even completed yet!

Really? Since when do governments stall on imposing new taxes? Sure it may take a year from the announcement...but YEARS???? Yeah right.

5. However, if you sit paralysed by fear of this tax review, you will make ZERO money in that time frame. You lose in that situation.

Paralyzed with fear? Wow you don't like to exaggerate do you? Cautiousness is not fear...there is a difference. I liken it to chess, see which pawn is moved so I can counter move...or do I move my queen into position oblivious to all others that still sit on the board?

 

[BV]

If it replaces stamp duty then that's a good thing because currently stamp duty prevents people from buying a property

 

[dallee]

If it replaces stamp duty then that's a good thing because currently stamp duty prevents people from buying a property

Indeed. We would be looking at stamp duty of $60-$70k if we trade up the PPOR, which makes a land tax relatively appealing.

 

[Player]

Single holding basis would be OK

Interesting thread.

The real problem arises when (and assuming if this national tax is passed) the feds not only want their cake, however they will want to eat it too and now............If this (alleged) national land tax regime is on a single holdings basis, then I say let them knock themselves out.

If, however it is along the lines of the current state levied land tax where the cumulative load of numerous properties delivers exponentialised levies, then there will be a likely sell-off of investment properties.

I have ventured interstate for land tax resons to optimise my position (and have the benefit of exposure to different markets) and also have some in our SMSF. Using trusts (carefully) can also help. A little bit here.....a little bit there and it lessens the impost.

I don't believe that such a fee could be immediately passed onto tenants. Interest rate rises usually see rents following in a somewhat generic sense, however not the taxes associated with (residential) investment properties. Perhaps if it also includes PPOR, then the damage will be less. If however it is only on IP's and not on a single holding basis........our tenants may become buyers as there will be a flood of IP's hitting the market.

I am not a pessimist and hold a fairly decent portfolio of IP's. This proposal may never come to fruition and if it does it will likely take time, however it is a matter of watch this space as the impact may not be as trivial as some are suggesting.

Maybe, in addition to raising as much revenue as they can, they (govt) are looking to "correct" our alleged over-priced resi real estate here in Aus in this manner............

 

[JIT]

The rent achievable is always a product of supply and demand, often with little relation to the increase or decrease in holding costs.

...

Rents do NOT go up necessarily just because expenses to the LL increase. The same way as there was no overall reductions in rent when interest rates plummeted to the lowest level in memory.

If rents go too high then people simply don't rent at that price.

...

Then the higher priced rentals stay empty until the rent is reduced to a reasonable level.

...

So do not automatically assume that an increase in costs can be immediately passed on. Maybe it can and maybe it can't.
Marg

Well said Marg.

I'm not sure why people here think that costs going up automatically means they can jack up the rent?!

Renters aren't stupid.

Being a renter myself, I've seen plenty of overpriced rentals sit advertised for ages before the LL gets a bit more realistic about the market rent.

Even where supply is limited.