Change is coming! Property developers may need to reconsider their business strategies with proposed changes that will affect off-the-plan investment properties.
Subject to the passing of the State Taxation Acts Amendment Bill 2017 (the Act) on 1 July 2017, it is expected that there will be a significant shift in the Victorian property market. It is proposed that off-the-plan contracts entered into on or after 1 July 2017 will have limited stamp duty concessions, with benefits allocated to first home buyers and those purchasers who intend to use the property as their principal place of residence.
What you need to know
- The significant stamp duty concessions currently available to purchasers of off-the-plan properties will be limited to:
- first home buyers of residential properties purchased as off-the-plan; and
- purchasers who intend to use the off-the-plan property as their principal place of residence.
- For contracts entered into prior to 1 July 2017, the off-the-plan duty concession applies to off-the-plan commercial and investment residential properties.
- The off-the-plan concession makes these developments attractive to investors as the purchasers are only required to pay stamp duty on the value of the property as at the date on which the contract is entered into.
- If the contract is entered before the property has been built, the dutiable value of the property will be lower and consequently stamp duty liability will be lower.
With the introduction of the proposed changes in the Act, these once-attractive concessions will no longer be available.
Why the changes?
The Victorian Government claims that it intends to introduce these changes along with other notable measures (HomesVic Program, Vacant Residential Property Tax etc.) to assist with the issue of housing affordability in Victoria.
What does this mean for developers?
The proposed changes to stamp duty concessions may result in a reduction in investor demand for off-the plan properties, particularly apartments.
With a reduction in investor demand, developer funding is likely to also hit a hurdle as the market for off-the plan purchases moves away from investor benefits.
It is expected that mortgagees are likely to require an increased percentage of pre-sales prior to approving funding for developments consisting of off-the-plan sales.
As such, developers should review their business model as some factors that once made off-the-plan purchases attractive to investors, and in turn banks, may no longer be available under the proposed new regime. With such a significant change in the stamp duty concessions regime, it is reasonable to expect a change in the available market.
In the meantime, there is likely to be influx in properties being sold by developers prior to 1 July 2017, in an effort to retain the effects of the current off-the plan concessions which will begin affecting contracts entered into on and after 1 July 2017.
What happens now?
Property developers should be aware of the impending changes to the Victorian property market.
Madgwicks will continue to provide feedback on the new changes and the likely effect on the Victorian property market once the Bill has passed. If you have any legal concerns relating to your development prior to the Act coming into place please do not hesitate to contact us.