Budget stamp duty concessions get sales rolling again
By Tom Bacon - Principal, Strata Title Lawyers
The Victorian Government announced new measures as part of its budget for the 2021/22 year to incentivise homeowners and investors to speculate on new apartments in the Melbourne area.
The measures include widening the scope of the “off-the-plan” duty concession to cover higher value properties for purchases made under contracts entered into on or after July 1, 2021, resulting in stamp duty savings.
We have also seen an increase in the “off the plan” dutiable value ceiling to be raised from $750,000 for first home buyers to be raised to $1 million to all buyers.
There is also a 100 per cent stamp duty exemption for purchases of new residential property that has been unsold for 12 or more months since completion with a dutiable value of up to $1 million, which includes the Melbourne CBD, Docklands, Southbank, South Yarra and other popular Melbourne suburbs. For a $1 million apartment, this represents a saving of $27,500.
This is a positive change for those that wish to buy an apartment to live in, which should hopefully result in increased demand for apartments, particularly in the CBD, and may in turn incentivise developers to green-light construction projects that they might otherwise land-bank and otherwise wait for more favourable conditions.
However, beware home buyers that are looking to purchase a new apartment for more than $2 million, as you should consider whether to enter into a contract before July 1, 2021, depending on eligibility for the “off the plan” duty concessions.
By way of example, in the absence of any duty concessions, a home buyer looking to purchase a premium residential apartment in Victoria off-the-plan for $4 million on or after July 1, 2021 would be liable for duty of $240,000 based on the new premium stamp duty rate. However, if the off-the-plan contract is entered into before any construction starts, the buyer may only have to pay duty of $55,000, resulting in a saving of $185,000 (around 77 per cent).
In the above example, the buyer is in a better overall position by signing the contract on or after July 1, 2021 – if the buyer were to sign the contract prior to July 1, 2021, the buyer would not qualify for the off-the-plan duty concession and would have to pay duty of $220,000 (calculated at the rate of pre-July 1, 2021 rate of 5.5 per cent, on the contract price of $4 million).
In my view, it is so important to increase the capital values of the existing apartments in Melbourne, as for far too long, the values have remained static relative to say, the cost of stand-alone dwellings.
The answer is not to pump the market with thousands more of new apartments. There is simple demand and supply economics to consider. The Victorian Government needs to understand that investors and owners are rightly worried about combustible cladding, building defects and quality and the relative amenity and liveability of these apartments.
The best incentive to get owners and investors moving back into purchasing apartments is to improve governance and fix the cladding crisis.
Once capital values start to rise, just you watch. I bet that thousands of existing apartments will start to be bought and sold, because owners and investors will be able to cash in on a capital gain. This will fill the state’s coffers with stamp duty.
I really do think the Victorian government missed the boat here. We all know that stamp duty revenue is needed to repair the budget and pay for all the infrastructure projects this government is committed to.
Instead, it is simply offering incentives to its developer mates to keep the apartment building pipeline going. What a spectacular missed opportunity •