The Victorian government has announced stamp duty reductions for off-the-plan apartments, townhouses and units bought in the next 12 months in a scheme designed at stimulating development amidst the housing shortage.
The government has estimated that stamp duty paid on a new, off-the-plan $620,000 apartment will reduce from $32,000 to $4,000 for investors and non-first home buyer.
Prior to the announcement, first home buyers already received a stamp duty reduction on new or established properties worth up to $750,000.
So, does this mean you should buy an off-the-plan apartment, townhouse or unit just to save tax?
The problem with this scheme is that these types of dwellings are notorious for low capital growth, particularly apartments and units. The following growth chart from realestate.com.au illustrates this well:
Houses typically have greater capital growth because:
The property value is more closely linked to the land value which is a scarce resource in areas people wish to live.
Houses don't have expensive body corporate fees.
Houses often provide the opportunity for alternatives in the future such as house extensions or subdivision.
Apartments and units often have greater competitor from newer alternatives built in the same area.
Townhouses sit somewhere in the middle of houses and apartments/units and their capital growth typically reflects this by also being somewhere in the middle.
If we use the suburb of Prahran as an example, we can see that over the last 5 years, the median price of houses have grown at 3.15% per annum on average compared to -1.06% per annum on average for units and apartments.
So, who will these changes appeal to?
Without strong capital growth, any negative gearing strategy for property investors is a poor strategy.
First home buyers already had stamp duty concessions up to $750,000, so this change does little for them.
Perhaps the only category of people who could see benefit in this change are those who are established, looking for income yield (rather than capital growth) and can buy these property without financing (for instance by paying with cash or purchasing inside a family trust or SMSF). However, it's still likely other investment types would outperform over the long term given the lack of capital growth.
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