The Victorian government's decision to scrap the stamp duty exemption for buyers purchasing off-the-plan is likely to deliver a significant hit to the development sector, according to those in the industry.
Sam Tarascio, managing director of Victoria's largest developer Salta Properties, told SCHWARTZWILLIAMS he believes the government has made an error of judgement.
“Having had time to reflect since the Victorian State Government announced changes to property stamp duty, it is clear that the Government has got it badly wrong," he said.
Tarascio said investing in new property will be less attractive.
“Investors are by far the worst hit," he said.
"The Government has been careful to mask the fact that, not only are residential investors hit, but also commercial property investors. As a residential example, on a $500,000 purchase with a $50,000 land value component, stamp duty will increase from approximately $3,300 to $27,500; an eight times increase of $24,200."
Tarascio predicts the new policy will mean a decrease in the supply of new homes, as higher taxes make investment in new developments less attractive.
“Essentially the government has loaded new taxes into the system," he said.
"In a high demand and diminishing supply environment this can have only one impact on prices,” he cautioned.
Jon Ellis, CEO and founder of Investorist, echoed Tarascio's concerns, and said the impact will be particularly harsh for foreign investors.
“For foreign investors, the Victorian Government is sending the message ‘we don't want your money, and we are doing everything to discourage you buying new property by adding more and more taxes’,” he told SCHWARTZWILLIAMS.
Ellis said removing the stamp duty exemption will increase prices, decrease supply and increase rents.
“It is beyond doubt that the Government’s stamp duty changes will drive up the price of property, as investors compete with owner occupiers who now have more to spend in the sub $600k range. Less investors in the OTP market also mean less apartments available for rent, pushing up rental prices,” he said.
Ellis said that while the impact might not be felt immediately, deferrals of new developments now will mean lower supply of new dwellings down the track.
“I predict the stamp duty removal will also have a hugely detrimental effect on the supply of residential apartments in Melbourne, which won’t be fully apparent for the next 2 to 3 years," he said.
"Developers are already deferring decisions on larger Melbourne projects as a result of increased difficulty in securing the pre-sales required for development finance. This will be the final nail in the coffin for many," he said, adding that developers are likely to look to other states for projects, where conditions are more favourable.
Ellis said there has been a flood of enquiries from potential investors since the announcement, as they shore up their plans before the 1 July removal of stamp duty is implemented.
"Since the 5 March announcement, we have had an increase in enquiries for listed properties of approximately 40% month-on-month," he said.
“Our developer clients tell us there has been a rush of interest from investors to secure OTP properties," he said.
Ellis expects to have more information about how Chinese investors are feeling about investing in Victoria, when he meets with hundreds of Chinese agents next week at Investorist's China Connections events.
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