Land tax and booming markets (Melbourne)

Hi all,

Hope you are well.

Given all the current increases in values what %s are people factoring in for land tax increases year on year?
I use to factor in a 5% yoy increase, not sure this is enough (especially this year) given the current boom?

Particularly interested on people's thoughts/views in regards to Melbourne.

Thank-you in advance.

 

Don't have that problem of hitting the threshold if you're buying units/townhouses/villas.

 

Vic land tax is a progressive shaded rate and far less a impact that some other states eg NSW has a uniform 1.6% rate when the threshold is exceeded. It also has three year average smoothing and an indexed threshold. The recent Vic budget only foreshadowed a rate rise for those with total land over $1.3m. The date and timing of when the VG values applicable land may also be a factor. Some may be earlier than others. The land component is just a part of total value rises. For a house on land a rise above 5% could be expected - guessing.

Land tax cant be planned other than as Scott alludes prior to puchase and choice of property that is less inclined to be heavily taxed. Units and villas have less land applicable and allow more multiple properties prior to thesholds being met. But they also have less appreciable land.

 

Utter Garbage, One unit puts me over the threshold and is over half my bill. It depends on the location of land, value of land and land component. The building on it is irrelevant. $500k worth of land with a $200k unit can pay way more than 4 houses with buildings worth 200K and land worth $90k.

 

Usually the other way around - units generally have a much smaller land component than houses, if your (house) building is worth more than the land, you'd be overcapitalised.

 

There are heaps of inner city homes where the building is worth more than the land.

 

Without a VG valuation on hand and a understanding of the complete property value thats difficult to categorically determine and I argue it wont matter as they cant be seperated. Thats why the VG regularly values each parcel of "land" so that a uniform basis for taxing and charges (eg rates) is used. What the building may or may not be worth is irrelevant for land tax and you cant deduct one from the other just as you usually cant sell a building seperate from its land. I know of apartments that have significantly higher land value than free standing houses. Its a generalisation. Each buyer should ascertain the potential value subject to tax prior to purchase. Thereafter uniform factors will usually affect changes in total value. Those same % apply to the whole element so it defies the common saying : "Buildings depreciate and land appreciates". This is quite incorrect.

This is iften demonstrated with a new build
Land cost $500K
Build cost $500K
Final value $1.4m.
What increased in value - Land or the building ? Neither. It is the total value. However if the land valued had risen due to price infation it may be higher than it was earlier.

Land valuations | State Revenue Office indicates VG values are for the unimproved site. The site additions include buildings, pools, driveways, gadrens and fencing as well as hidden matters like services connections and intangibles like trees and presentation or special features. The saleable market value is a opinion at a point in time and is generally based on the whole of the property. And you cant value the building by deducting the land.

 

Agreed. If you have a decent house and bought it close to unimproved land value, you have done well! Particularly in desirable areas.

 

Land tax will be soon reducing returns by 20% of more for those that hold many IPs.
Either the rents go up, which are now being fixed to CPI around the country, or the return comes down if not negative.
Indirectly this also makes owners try to squeeze the most efficiency out the land.
Your nice big block will bleed cash a lot more unless it's sold or re developed more efficiently, meaning more people.

 

Some owners also access land tax covid concessions and face limits on raising rents. Typically only covid impacted owners. You cant moan about getting a concession AND rising values as an investor.

Vic : 2021 coronavirus land tax relief | State Revenue Office
NSW : COVID-19 (Coronavirus) and Land Tax NSW | business.gov.au and the residential relief of 50% (2020) and 25% (2021)

Land tax increases are an inevitable effect of owning quality growth assets. Its a bit like complaining about unrealised CGT - It doesnt have to be paid annually but does continually accrue. The greater issue of concern is blindly buying property without considering land tax changes and issue. eg Buying too close to threshold, wrong ownership %, holding property in one predominant state rather than spreading it etc.

Tip Consider after tax impacts and consider if rent is up to date. I saw a taxpayer in past few days who was pinged for NSW arrears. Their cashflows went from positive to negative with a huge land tax bill. But I pointed out deductability so they have halved the negative cashflow impact. Its now close to neutrally geared. They then are more focussed on raising rent in line with market where it was a litle under they though maybe CPI (2% ?). After speaking with agent they thought 6% is possible. Tenant just got told its rising 5% under a new lease and agent say re-letting it would be easy.

 

Wha???
The difference is night and day.
Land Tax is paid regardless of gains.
Capital Gains Tax is tax on profits made.

Land Tax may as well be rent. You get nothing back and it need to be paid regardless.
It's a tax on wealth. You pay because you own X amount of real estate.
Which you don't really own because if you don't pay the land tax, people with guns will come and take it.

 

Could someone smarter than myself please explain the effects on land tax when subdividing land.

if the land is valued at $1m and you subdivide, build two homes and individually title do you then pay land tax based on 2 x 500k effectively the same as the land value hasn’t changed or does the land tax increase also

 

Not much has changed, really.

 

If it was originally your ppor, it was exempt but if you move into one of the two homes you would be assessed on the other.

 

once subdivision has occurred does the revenue office value each individual lot higher or is it simply a case of existing value divide 2 in your experience?

 

No, vacant land may be valued differently due to scarcity, it may have services connected (now there are two serviced blocks, council development fees paid, titled etc) - essentially it is no longer a part of a larger block of land without services.

 

On subdivision you can expect:
- Seperate rates and services charges for each lot
- separate water and sewer charges incl service charges per lot
- Higher value per title for rates and also land tax.

Benefits may mean a higher valuation applies for lender purposes too

Discuss merits of subdivision v not subdivided and strata with a town planner.

 

You will most likely start paying higher rates and land tax after you put a DA in.
And a big increase when it's approved.