The end of the financial year has crept up on us once again. This means that not only is tax time almost here, but the announcement of the Federal and State Budgets for the 2021-22 financial year.
After all announcements surrounding the budget were made, it was easily clear how the industrial and commercial property sectors were going to be impacted. Over the next year, the property sectors will see another round of tax hikes, leaving our sector to once again absorb additional tax burdens.
Property currently accounts for more than 40 percent of government revenue, and these tax increases brought on by the Victorian government could make Victoria a less desirable place to invest, with the potential to harm jobs and the property economy.
Victorian landowners will have to pay more in the form of significantly increased land tax costs on their business, through their commercial office spaces, and their industrial warehouses. The state will also see increases in stamp duty and a new tax on property investment and development. Stamp duty will be going up 13 per cent, while land tax will go up 15 per cent this year alone, on the back of substantial hikes in land tax over the past 2-3 years.
Both State Governments and the general public at large have the misconception that property owners are ‘millionaires’. The truth is that a large percentage of the residential investors are the ‘mum and dads’ who have scrimped and saved to enter into the residential investment market. Whereby property investment has out-stripped other forms of investment over the past 3-5 years.
Introducing taxes like these at a time when commercial CBD properties are struggling to find tenants, will put an extra burden on commercial real estate, which already struggled throughout the 2020. With the land tax increases, being unable to be passed-on directly to tenants (land tax is not a recoverable outgoing under the Retail Leases Act) landlords will have no other alternative other than to increase base rents.
These double-digit tax hikes are inevitably going to create a dent in the property investment market throughout Victoria. It is likely that the new government taxes will push current investors out of the Victorian market, and into other states.These Budget changes have reflected that there is a fundamental misunderstanding of the real estate sector throughout Victoria, and its contribution to the economy, especially its influence on our economic recovery, post-pandemic.
The State Government, in particular, is just gouging the buoyant property market, at a time when business is still struggling to come out the other side of constant 12-month COVID lockdowns.This won’t only impact investments, but also everyday Victorian businesses needing warehouses and offices to house and grow their businesses.
The Real Estate Institute of Victoria (REIV) has since expressed its concern surrounding the budget announcements. REIV President, Leah Calnan, has said the tax hikes will make Victoria a less desirable place to invest, ultimately harming jobs and the economy. Continuing on to voice her concern, saying “If the Victorian Government is serious about jobs and housing it needs to invest in real estate, not attack it.”
The next few months will be a crucial time for the sector, as we witness the introduction of these new tax increases. While we will all work hard to adjust and keep the sector moving in a positive direction, the impact of these changes will be clear before the end of 2021.