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INVESTORS TO LOSE SIGNIFICANT STAMP DUTY SAVINGS IN VICTORIA

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The Victorian Government recently announced a number of significant changes to stamp duty, which will take effect on 1 July 2017 subject to the State Taxation Acts Amendment Bill 2017 being passed.

While most of the headlines have focused on the benefits to First Home Owners, most commentators have failed to notice or emphasize the other major proposed change to stamp duty that was slipped in.

That is, after 1 July 2017, off the plan duty concessions will no longer apply to investors.

This represents a significant departure from the long standing rule that purchasers buying property off the plan will pay stamp duty only on the land value of the property. For eg

William and Mary buy an apartment off the plan for $500,000 for investment purposes. Land value is $150,000 as at the date of sale.

  • If their Contract is dated 30 June 2017, stamp duty is calculated on $150,000 and works out to be $4,070
  • If their Contract is dated 1 July 2017, stamp duty is calculated on $500,000 and works out to be $25,070

Purchasers can still apply the off the plan concession if the land value does not exceed $550,000 and they declare it as a principal place of residence, including if they qualify as a first home buyer.

One of the main drawcards for investors buying off the plan was the savings in stamp duty. This balanced the risks in buying off the plan, i.e. locking in a price which may fluctuate over time, being exposed to construction risk and the opportunity cost of having your deposit money tied up for several years.

Now that the stamp duty concession is off the table, we wonder:

  • does the risk of buying a property off the plan outweigh the benefits?
  • will it better to buy property once it is completed?
  • will developers be able to obtain construction finance when they are currently heavily reliant on pre-sales?
  • will it mean that we will see less new property stock over time?

 

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