The property market is booming, driven by a combination of high demand and shortage of supply.
Many have commented on the resilience of the market, which defied the anticipated slump due to COVID restrictions.
Mainland investors have been playing an increasing role in an already tight property market which has contributed to pushing up property prices.
For property owners, this has been good news, as their properties have increased substantially in value. For a period tenants have been protected by government intervention, but that is now drawing to a close, and the day of reckoning for them is drawing close.
However, that is not the only story. The Hobart environment will soon be faced with a new round of municipal valuations.
The revaluations are due for Hobart and Kingborough in 2022, and for Glenorchy, Sorell and Derwent in 2024. Hobart is the largest municipality with already the highest value of land in the state.
These valuations are the basis for determining council rates (assessed annual value) and State Government land tax (land value). Councils levy rates on all property – each property is being provided with council services after all – however, land tax is not.
It is normal for councils on receipt of the reassessed values to adjust the rate in the $ downwards to offset the higher values. That is not the case for land tax as the scale is “the scale” for the entire state.
In fact this will be a windfall for the government, which is struggling to get its budget back under control after the additional expenditures made for COVID.
If property prices are set to increase significantly from 2013 levels, then that will bring about a significant lift in property tax receipts. Good for Government, but not good for property owners and their tenants. A tidal wave is forming.
The present land tax scales are as follows:
The Premier has recently announced a proposed amendment to these scales as follows, depending upon the passage of legislation through the Parliament:
A further consideration is that for owners of multiple properties land tax payable is based on an aggregated land value. In determining the land tax applicable, a land owner will be charged at the rate of the combined value of all properties. An owner with two properties each with a value less than $350k, but with an aggregated value above $350k, will be charged the higher rate for both properties. Is this fair? We don’t think so. Putting aside the debate on the merits of the tax surely each property should be treated on its merits, and not be treated as being a part of a broader entity.
In the commercial world of offices, retail shops, hotels and industrial applications a property owner may seek to recover the cost of land tax from the tenant. However generally this is prescribed as recoverable on a single holding basis leaving a shortfall for the property owner.
Higher costs in one form or another will affect the occupant – many of them small businesses – and not “the top end of town” as argued. Equally the same principle is at play for residential property investors whose only course of recovering a property’s overall financial performance is to simply increase the rent. Recent public and political debate has been dominated by this topic with any rental movement upwards frowned upon. This will act as a disincentive to investors at a time when more investment is needed due to the failure of Government to adequately supply public sector housing needs.
As an aside, did you know certain property owners are exempt from paying land tax? Religious and charitable institutions and the University of Tasmania are such examples. Ironically, UTAS has been a major influence in setting new benchmark levels of land values in the Hobart city centre due to the planned relocation of the campus to Hobart.
Property taxes have been discussed for many years, but the politics of implementing change is a minefield. Now, those discharged with the responsibility of managing the state’s affairs will be faced with a quandary – to walk the minefield or be drowned by the tidal wave.
If there is to be a tax on property, then these are the issues that need to be considered, and leading that consideration are the following facts: in round terms, land tax brings in an estimated revenue approaching $150m, with the exemptions on places of principal residence, primary production etc. being a similar amount. Conveyance duty is about double the collections from land tax.
We believe the issue of conveyance duty needs some serious reflection, for this reason. In the first instance, buying a house is made more difficult because of the requirement to pay the duty, and many find that hurdle too difficult to jump. Second, conveyance duty is levied on a sliding scale, depending upon the transfer value of the property. The greater the value of the property, the higher the percentage of conveyance duty paid. Why? And third, a property that changes hands often will be subject to a series of conveyance duties, whereas a property that is seldom traded will not provide equivalent revenue to the state. The question is, should not the state treat property in a more equitable way?
State Government is confronted with diminishing ways to generate revenue. Property is a major contributor to council rates, and State Government conveyancing duty and land tax and with recent market activity property has been a cash cow. The sector is however being over-milked and the time has come to re assess.