I’ve had more than a few calls from Queensland property investors over recent weeks.
Some had missed the memo earlier in the year that Queensland is going to ‘tweak’ the rules surrounding the state’s land tax.
The question now: Do I hold or sell?
Many had piled into QLDs residential property market on the back of interstate COVID migration.
According to Census data, Queensland had the largest positive population change of any Australian state or territory for the year ending 31 December 2021.
More than 73,000 people moved there — a 1.4% population increase.
The state also recorded Australia’s highest level of net interstate migration.
More than 50,000 people made the shift.
Likely, some of those were leaving New South Wales.
It experienced the greatest population loss over the period, with some 35,000 people leaving.
As a result, Queensland’s residential land prices rocketed up $41.2 billion through the past financial year.
In fact, over the two troubled years of the pandemic, they gained some $74.7 billion.
That’s almost double national banking profits!
No wonder the governments wants to tap into a bigger share of the profit.
It’s hard to say how much of that increase came from out-of-state speculators bidding up prices, but I’ll bet it’s been a big influence!
I also know more than a few investors had expectations of further increases in lieu of the Olympics infrastructure buildout.
Still, it could all be about to change.
Queensland seeking more bang for their blocks
Earlier in the year, Queensland Treasurer Cameron Dick moved to close one of the loopholes many property investors used to dodge hefty land tax bills.
That is using the land tax thresholds in each state and territory to keep assessments low.
Every state and territory levies land tax (aside from the NT).
It’s levied on all investment properties — including holiday homes and non-residential land.
The tax is calculated on the total value of all taxable land above a land tax threshold (which differs in each state or territory where land tax is levied).
That means if an investor owns all his properties in the one state, let’s say NSW, the land tax would be significantly higher than if the properties were spread over four states, thereby taking advantage of the tax-free thresholds.
For QLD investors, this loophole closes.
It means that the value of property investments in other states or territories will now be considered when assessing the taxable component of land in Queensland.
In other words, if you own properties in Victoria as well as Queensland, your Queensland property will fall into a higher tax bracket than it would’ve under the previous rules.
Here’s what Treasure Dick had to say when it was first announced:
‘At the moment, interstate property speculators can claim the tax-free threshold and take advantage of lower land tax rates in multiple states.
‘That means these investors can amass multi-state portfolios that fall below the land tax threshold in any single state.
‘Queenslanders, with their entire landholding in this state, can end up paying more tax than these interstate investors.
‘So young families in places like Logan and Ipswich face unfair competition from Sydney-based speculators who are flipping properties around the country at a furious rate.
‘For example, an individual with taxable landholdings of $1 million in Queensland would pay $4,500 in land tax (or an average rate of 0.45 per cent).
‘Another individual landholder with $600,000 in taxable land in Queensland and $400,000 in NSW would only pay $500 in land tax in Queensland and no land tax in NSW at current thresholds.
‘We’ll close that loophole while ensuring there are no land tax changes for Queenslanders who own land wholly within our state.’
Put simply, Queensland is going to start collecting more of the economic rent from land.
The move will undoubtedly affect the state’s property cycle. How much, however, is yet to be assessed.
One thing’s for sure — it’s going to deter interstate property investors from investing in Queensland. My clients have their eyes set on Perth and Adelaide.
I also know more than a few who are selling up on calculation of the extra tax.
At the moment, the land tax exemption in QLD applies for properties worth less than $600,000.
Investors who own property outside of the state will be required to declare all investments they own out of state.
The change in their tax liability, could be substantial as Tony Greco, general manager of technical policy at the Institute of Public Accountants:
‘For example, someone who owns land in Queensland with a tax bill income of $745,000 and a property in Victoria worth $1.565 million would have paid $1,950 in Queensland for the 2022–23 financial year. Next year, that tax bill will shoot up to $8,400, based on the total value of their properties.’
Thing is, this is low-hanging fruit.
Depending on how the changes pan out over 2023, other states and territories could follow suit.
We’ll have to wait and see.
Needless to say, the property lobby are none to pleased.
Reports of an exodus of property investors, plummeting prices, and greater rental shortages are abundant in the press.
Still, if prices do drop, there’ll likely be a few first home buyers formally renting who will advantage!
The news is out there alongside other stories such as the Greens recommending a freeze to rents.
Aussies don’t fret!
None of the above is going to be politically palatable, that’s for sure.
Australians don’t take kindly to a dip in their property wealth.
Especially considering we have a tax system that encourages speculation in real estate above work and enterprise.
No surprise to hear that Canberra is stuffed full of property speculators too!
New research shows that Australia’s 151 MPs and 76 senators collectively own 237 houses or apartments, including their primary and Canberra residences.
Not to mention declared interests in 210 other properties — including holiday homes, investment properties, agricultural land, and so forth.
So whilst we may see a ‘tweak’ here or there to property taxes, it’s unlikely we’re going to see any major political shifts to deter investment into real estate.
The vested interests are just too high…
Bottom line, the boom/bust property cycle continues.
Editor, The Daily Reckoning Australia