Hello.
The NSW Mini Budget was released today, complete with nasty surprises for investors owning NSW property.
In a budget described as “tough but fair”, Mike Egan, the NSW Treasurer has taken aim at his State’s property investors and lit the fuse on an almighty cannon that’s sure to blow property investment in the State sky high.
There are two factors that need to be considered. Here’s the first one:
the levying of a 2¼ per cent stamp duty on the sale of properties except for a person’s principal place of residence and farms;The second point is:
the abolition of the land tax threshold and major reductions in the rate of land tax;Let’s examine these two points in turn.
1. Stamp Duty on NSW Property Sales
Over recent years the property market has boomed.
An overheated property market is no good for the economy, it’s no good for the community and it’s certainly no good for young people and families who are battling to buy their first home and are priced out of the market.
An overheated property market is only good for people like me – people who, besides owning their own home, have made good profits by owning an investment or second property.
We’ve made the profits on our property investment, so I believe we can afford to pay a 2¼ per cent stamp duty when we sell the property.
This duty, of course, will not apply to the sale of a person’s principal place of residence and it will not apply to the sale of farms.
To ensure that only property profits are being taxed, properties will be exempt from the duty in cases where the vendor’s sale price does not exceed 12 per cent of their original purchase price, with the exemption phasing out between 12 per cent and 15 per cent.
Legislation for the new duty will be introduced in May and the new duty will apply as soon as possible but no later than 1 July.
Don’t worry about pinching yourself to make sure you’re awake – this is a direct quote from the Mini budget speech.
Let’s look at the impact of this – imagine you buy a NSW property for $300,000. There is $5,490 in stamp duty on the way in. Three years later you sell in for $400,000. Now there is further stamp duty of $9,000. Imagine that the property costs you $3,000 per annum in negative cashflow in addition to a further $8,000 in sale costs when you sell.
Don’t forget that the fed government also grabs CGT – in this case (assuming top marginal rates) approx $16,600.
So… in this transaction the poor NSW property investor pays tax/duties of $31,090 and makes an after costs net gain of $51,910!
Just one question remains… if the government wants to share in the profits, will it also refund or credit stamp duty in a loss situation? I don’t think so.
This is a breathtaking way to steal the profits from property investors. Not only have they paid a premium stamp duty to buy into the market (as the government coffers grew fat from higher prices and non-indexed stamp duty thresholds), but now they’ll introduce a new tax on the way out too.
All I can say is that it’s a good thing I don’t own any NSW real estate.
2. Land Tax
At present New South Wales has a high threshold at $317,000 and a rate of 1.7 per cent above that. From 1 July, the threshold will be abolished and fairer and lower rates will be introduced.
These changes are designed to do two things:
First, take some of the heat out of the frenzied residential investment property market which has been the major factor driving up New South Wales house prices.
And second, provide most businesses with a significant reduction in their land tax bills.
Well, if the intention is to take the heat out of the market then these two initiatives will result in ‘mission accomplished’.
The change in the land tax thresholds is nothing more than goal shifting. They will be robbing Peter (residential investors) to pay Paul (businesses), only there are a lot more Peter’s than Paul’s and the surplus is going to Carr!
There is no way the government would introduce this without the goal of collecting more revenue, the comments about business savings are a tragic attempt to soften the blow.
Take that $300,000 investment property for example – let’s say the unimproved value is $90,000.
Previously this would have been exempt, but now there will be an annual bill of $360! And who do you think will pay that? Tenants, that’s who! The NSW government, champion of the people if you believe the political rhetoric in the mini budget paper is actually introducing a tax that will make rents more unaffordable.
Final Comments
In the movie The Castle, suburban solicitor Denis Denuto, in summing up his case said:
…it’s the Constitution, it’s Mabo, it’s justice, it’s law, it’s the vibe and —
No, that’s it.
It’s the vibe!
Well, the Hon Mike Egan has this to say:
It is big and it is bold and it is fair. Above all it is fair.Well, I know who seems to be writing NSW government policy.
As for being fair – I disagree and I’m sure the small army of NSW property investors, voters Mr Eagan, share the same view!
Those thinking of selling would be advised to do so prior to this being introduced or else risk losing 2.25% of the sales price.
Read it and weep: Mini Budget Paper
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Steve,
have just been reading your book which is excellent.
Do you think this move by Carr is going to kill the NSW property market or just push prices up?
Any thoughts would be appreciated.
Tim
Hi Tim,
I am not Steve but I suspect that Q, NZ and Vic just became more attractive places to invest especially given they are reasonably close to NSW.
Derek
[email protected]Read my comments? Think I can help you? PM or email me.
Hi Tim,
Welcome to the forums mate. Glad you enjoyed the book.
Surely this can only lead to disaster for NSW property investing. Investors will simply head for other states where the laws aren’t so draconian.
Someone with some sense needs to sit down with the Carr government (and all others for that matter) and outline that the way forward is not to tax more but run an efficient government.
Once upon a time it required skill to govern, nowdays policitcal inefficiencies are covered up by higher taxes.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Steve (and Derek),
thanks for your replies. I tend to agree with you Steve (although I wouldn’t be suprised if other states follow suit).
My guess is the market is going nowhere, but rents will be pushed up due to land tax. Is it possible though that sub $500k IP will be now held onto more due to levy tax, thus supply reduces yet first home buyer demand increases? All very confusing.
Tim
The state government justification doesn’t make a lot of sense.
By taxing sellers, it will discourage quite a few people from selling their property. That is likely to reduce supply and push prices up.
In what way does removing the land tax free threshold is ‘fair?’
We have a state government that have miscalculated their budget, and came up with another tax to fix it up. They deserve to be voted out of office.
CarLover.
I already posted a long one on my emotions re stamp duty on a topic tonight which says the gov needs to wake up and stop taxing those that are trying to do something positive, besides the fact that we have already added generously to the state and fed gov cofers. I see this as a negative for NSW and the investors,
DOnt be fooled by promises of what they might do with the money, afterall they are empty now, so too are any promises.
Elves
” a blind man may see what a sighted man may not”
Hi,
What this may mean is that investors will be inclined to refinance rather than sell, since that way profits can be accessed without the payment of stamp duty.
This may be OK for some, but if the additional borrowing is used for paying lifestyle expenses then it is a recipe for absolute financial carnage (as a result of the tax implications)!
Further, more debt means more risk.
In a boom market the government’s policy shift could be passed off as a speed bump and may even cause prices may rise (supply shortfall as investors refinance rather than sell).
However, in the current environment where the headlines are already doom and gloom, this sort of policy may be the tree trunk that snaps the property camel’s back.
Time will tell. Maybe commonsense will prevail.
Bye,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
I know I won’t be spending a cent on RE in NSW. The tax laws are pretty bad in Australia already, but this just takes the icing on the cake. Saying that though, people who rent out properties owned in NSW, be prepared to start charging alot more rent, as rental housing stock will go down dramatically, and so there will be higher demand [
].The politicans just don’t get it do they – What ever they do we will always find a way around it…
I must also note though, the NSW state gov. for the last 4yrs, has spent $4 Billion dollars, yet we still have failing hospitals, a dangerous train system and over development on a massive scale, destroying Sydney. So what is he spending the money on? My guess – media advisors.
Rgds.
Lucifer_auFrankly never thought much of politicians, and think even less now…as I age.
I really dont think they live in the real world or that commonsense ever prevails. After all if they screw up, someone else will come along to so call fix it. They screw up they get kicked out, but hey they dont care…while we all keep paying for their mistakes.
Not everyone can refinance.
Elves
” a blind man may see what a sighted man may not”
I agree with Steve’s comments, there is no way they would have dared to make this decision if there was an election on the way, will we remember in a few years time the sneaky way he did this to cover his governments poor financial state. Investors have long memories Mr Carr, and most importantly WE PAY THE DAMM TAXES. HG
“and most importantly WE PAY THE DAMM TAXES”
I suggest you find a new accountant.
Rgds.
Lucifer_auSteve’s correct,
The impact of this decision is a crushing blow to NSW investors, and is the single biggest ” Money Grab ” I have ever seen from any government.
And if you think there doing First Home owners a favour think again, when will governments understand that market forces in the property market will prevail in spite of there rediculous attempts to change the Law. Ultimately a LOSE/LOSE for everybody!
The Sco![suave]
Have faith and you will achieve good things happen when you believe
Blah, blah,blah, so many people so upset, yet come election time that miserable Carr and his morally bankrupt government of his will be put back into office.
All because next month all those people up in arms will be fast asleep again, having forgotten all about the matter.
Or at least forgotten so much about it that they
will be too apathetic to take to the streets, too apathetic to speak up at election time, too apathetic to start a political party called (for example) ‘Enough is Enough’.Remember that one doesn’t need a majority in parliament to have the power.
Just a simple balance of power is sufficient to keep, whatever government is in charge, under control.
Pisces
“All I can say is that it’s a good thing I don’t own any NSW real estate.”
I agree, as a non-owner. I mean, I couldn’t have afforded to negative gear anyway, even if I believed in negative gearing which I so don’t anyway.
But I have sympathy for those who lost money for years negative gearing their crap 2 percent yields, looking forward to eventually splitting that capital gain with the government, (not) and now being dealt another savage blow. I mean, the boom is over so clearance rates were already down, prices were dropping, interest rates were rising as were vacancies, capital gains tax was looming, there weren’t any CF+ve properties on the horizon to balance things out a bit, and now THIS!!
However i think it will kill the market even before they put the law in, people scrambling to sell now to keep that 2 percent if they can.
Look how people panicked when interest rates rose a measly quarter of a percent, well this is 8 times worse. Also wait until the media get hold of it. Maybe we will see some battlers crying on TV with no make-up on. (sorry, just what I was bleating on about on some other thread recently!)
I agree that the Sydney market was overvalued. If you don’t ever stick your head out elsewhere in the world and that’s all you know, you might not have realised it, but globally, Australia is one of the top four most overvalued nations, and Sydney’s gotta be THE most overvalued of all surely?
Yes, indeed – the other thing you could do is refinance, grab some of that equity and buy some CF+ve properties in NZ….hehe
Elves, yes not everyone can refinance, but if they bought +ve CF they probably would have a heap better chance.
Hi Guys
Tasinvestor said
I believe that later this year there will be no +CF deals left in NZ.Well, all you NSW property investors you had better hurry up if you want a +CF property in NZ.
Regards
I will not forget these parasites at the next election that’s for sure, and as far as the property market in NSW?
Well I was on my tippie toes to buy half a dozen cheapies in regional NSW but Bob, you can stick those babies were the sun dont shine baby[stun]
Lets hope the reporters do a number on that pair of tossers, and lets not forget our mate Bob has property in in….in? Can anyone remember? New Zealand….of course, so its ok for him, and I wonder about his half ass side kick? Where are his properties? You telling me they aren’t covering their backsides!
Four Corners! Go Get Em![skull]
“Dont be looking in your back yard for a four leaf clover when the opportunity of a lifetime could be knocking on your front door….”
I’m not so sure people will forget this by the next election.
Right now Joe Blow might be celebrating at this great new tax that hits the fat cat landlords and gives him a break.
But those extra investing costs will come out somewhere – and it will be in rents. Less investors, and the supply and demand equation changes to a shortage of rental properties.Keep smiling
Felicitylets just hope it doesn’t head our way in VIC – after all, all premeirs are great friends in our country and ‘birds of a feather, flock together’
Kind Regards,
George.“If You never never ask, you’ll never never know”
I’m excited to hear about all these investors/potential investors leaving the NSW property market. Why? Because reduced supply of rental property will lead to higher rents
From my point of view yes I will be up for land tax. However, when I pay $100 land tax, it is tax deductible, so on a 48.5% tax rate, I’m out of pocket but not much. When I eventually go over the old land tax threshold I will be saving money because of the reduction in rates. But I’ve probably already made up my loss because of higher rents.
The 2.25% sale levy. The real issue is if your sale price is somewhere between 12 and 15% higher than your purchase contract. However, as the levy will be a deduction on capital gains, my loss will be about 1.7% not 2.25%. Of course if prices are reduced because investors have moved out of the NSW market I will not make as much profit either but I will have saved a lot of money when I buy, so I will be getting a better rent yield.
The problem with the levy is that people alter their decisions because of fear of tax and might not make the best decision for themselves. Years ago I knew people who were paranoid about paying income tax so they would borrow and buy more plant & equipment for their business. Instead of paying income tax and keeping some, they were paying all their income to finance companies.
crj
].
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