ACT Canberra land tax laws

Are Canberra's "No threshold" land tax rates high enough to put you off buying an investment property in Canberra. On the flip side you have low unemployment, high rents, but prices to get into this market are high unless you buy a unit.

 

We are currently living in a ppr in Canberra. We are Queenslanders and will sell up when we go back so the answer is 'yes' for us. With land tax the yield isn't there. Our IP's are also elsewhere.

We have enjoyed living here though, probably my favourite house and location.

 

If I was looking for an IP, it wouldn't put me off. We have rented out our house before but are living in it at present

 

Personally I think it has put quite a few investors off buying in the ACT and some have sold out. It's contributed (just one factor) to the very tight vacancy rates and the increases in rent. So for those investors who are staying in the market or coming in it means rent increases and low vacancies. For a detached house you can be looking at 4-7k in land tax alone per annum, plus very high rates. Can equal about 10k + per annum to hold a house compared to say Brissy that is around 6k to hold a house. Units can still be cashflow neutral in some areas (but poor growth prospects across the ACT for units) but it's tough to find a house that's cashflow neutral or positive if you are buying in now. For those who bought 3-4 years ago or longer than that then buy in prices were lower and rents now higher so it's ok for them, most will continue to hold I suspect. I don't think the lack of investors though will affect CG going forwards in the ACT for houses as it's an OO driven market.

 

I think it comes down to cash flow and what you want out of an investment. If your only aim is capital gains and you are comfortable with poor cash flow and the Govt draining your money then OO style detached housing will perform well in capital growth. Housing starts for detached houses are dropping and the Govt continues to release less lots per year.

In my opinion 99% of the units in Canberra should be avoided by investors. Cash flow will be drained, the capital growth outlook is poor and the Govt has already flagged an intention to flood units in the future and build up.

So to answer your question, yes for units, maybe for detached houses.

Also agree with @Kassy , Canberra is an amazing place to live! Best kept secret.

 

obviously it depends but for me its about 25% of gross rent lost to rates/land tax. that is an entry level house, i guess if I had a nice new house then the rent would be higher and that % smaller. the thing that worries me is that it will compound away forever and a day , way faster than inflation.

I would not buy here again. maybe if it was the only state or capital in Australia, but when there are plenty of other markets...

 

Good piece by @petewargent on the Canberra rental market and effects of the unique land tax.

Pete Wargent Daily Blog: Canberra/Hobart turning into rental disaster zones

 

an impressive low vacancy rate (or unimpressive depending on how you look at it), considering so many apartments..imagine if there was no apartment oversupply! (ok sure, you can argue there is no oversupply if they are all rented). i certainly agree there are less investors than there otherwise would be if no land tax/or a reasonable land tax, but must be masses of students or something that bring with them a lot of rental demand also.

 

A war story. A bought an older style unit in Kingston (2/1/1) a couple of years ago for ~400k. Land tax shot up from around $450 a quarter to around $700 a quarter. On top of body corporate and rates, the holding costs were astronomical. Thankfully I moved in and so now don't pay the land tax, but it would have to be a very attractive gross yield to tempt me to buy an investment here.

As a side note, it would probably go for at least $430k now, so not all units in Canberra are a disaster. But I think you need to buy smart (central, low body corporate with some uniqueness factor).

 

Yep, quite a consistent view about land tax issues here, but also interesting to note that quite a few people who have posted in this thread, choose to live in Canberra, must be pretty good lifestyle.

 

Land tax is depressing but the upward pressure on yields is undeniable. Given Canberra rental market was already relatively expensive, it is not great for tenants. I assume someone who developed the policy shift to land tax thought about this....

and I don't live in Canberra

EDIT: Unimproved values jumped this year so annualised rates are now up 4-10% ... So for the first time it isn't just investment/tenants being slogged.

 

We recently sold our apartment in Canberra, but in Jan 2018 we increased the rent by $20 to $490 (we had people offering $495 when it was open for tenants) and it looks like the standard rent for like-for-like would now be $510-$520. Quite tough for renters, but I guess that isn't an issue for the ACT Government.

 

Yep, it's textbook economics. Change incentives, change behaviour. Investors are rationally pulling back from the market. In other words, the rental market has had a shock which has increased rents (land tax's incidence has shifted away from fully being levied on investors).

 

My, my. Who would have thought the ACT Government, or landlords, would contemplate doing such a thing? They are taking all the fun out of it.

https://www.canberratimes.com.au/na...andlord-tax-recovers-13m-20181111-p50fdq.html

 

More bad news for renters...

Full article here

None of the above is surprising to be honest.

Cheers,
Oracle.

 

It should be more expensive than Sydney though. As a percentage it definitely has more higher paying jobs and also has a higher average salary.

 

Who could've seen this coming? smh

 

Considering you don't actually own the land in the ACT, how do they levy the leaseholder with a tax?

 

On the leasee