RP Data re Stamp Duties

Posted: 20 Jan 2015 07:34 PM PST

The Federal Government is to shortly release a white paper on taxation reform.  Plenty of recent inquiries and taxation documents have specifically noted that the taxation treatment of property should be reviewed and if ever there was a good time to look at changes to stamp duty it would be now.

Given where the property market now stands any changes to stamp duty should be implemented sooner rather than later especially given home value growth is slowing and transaction volumes are trending lower.  Of course, state governments are heavily reliant on stamp duty revenue and are therefore reluctant to have it removed although we will discuss how these issues can be overcome.

Stamp duty is a tax which is payable when someone chooses to purchase a home.  Home owners will generally move home because their current home is too big or too small for their needs or because they have changed jobs and need to move elsewhere to be closer to employment.  The impost of stamp duty discourages people from moving to more appropriate accommodation.  If you don’t yet own your home and are considering purchasing your first home, stamp duty is an additional upfront cost which can make purchasing a home even more difficult.

The above chart tracks home sales over time and as you can see, after transaction activity peaked in the boom of 2001 to 2004 it has trended much lower ever since.  Although home values have been increasing over the past two and a half years and sales volumes have increased, the rise has been moderate.  When sales hit a low point in October 2011 there had been 409,582 house and unit sales nationally over the year.  Transaction volumes rose to as high as 490,326 sales over the 12 months to July 2014 which represents an increase of 19.7 per cent.  The recent peak in sales was -22.9% lower than the all-time peak of 635,661 sales over the 12 months to May 2002.

While increasing home values may make home owners feel wealthier, when you buy your next home stamp duty is calculated based on the purchase price so you have to also pay a higher amount of stamp duty.  Over the past, two and a half years, home values have increased by a total of 20.7% across the combined capital cities.  Most of that growth has occurred in Sydney and Melbourne however, values have risen across all capital cities.  What this means is that when people are buying homes the increase in value is also increasing the stamp duty burden for the next purchaser and subsequently providing additional taxation revenue to government. The impost of stamp duty is also a further barrier to market entry for first home buyers despite some states offering discounts and incentives to first time buyers.  Furthermore, stamp duty is acting as a disincentive for home owners from moving (eg. upgrading or downsizing) to more suitable or appropriately located housing.

Data released last year by the Australian Bureau of Statistics (ABS) showed that across the state and territory governments there was almost $36 million in taxation revenue from property (note this is both residential and other property types) over the 2012-13 financial year.  Stamp duty was the second largest source of tax revenue at $12.841 billion with only municipal rates at $14.192 billion being higher.  Over the year, as home values and sales rose, stamp duty revenue increased by 16.9%.  Home values moved even higher during the 2013/14 financial year and sales rose further so it is reasonable to expect a further significant increase in stamp duty revenue.  At CoreLogic RP Data we have noted a reduction in sales over recent months and the rate of capital city home value growth is slowing, while this may not be enough to impact stamp duty revenue in 2014/15 it will probably start having an impact by 2015/16 (of course different states will see the impact at different times).  The point is because stamp duty is a tax collected on the purchase of a home it is collected from a relatively small proportion of the population and is an unreliable source of tax reliant on demand for homes at any given time which can ebb and flow substantially.

Although I am an advocate for stamp duties removal I do realise that state government will need to raise that revenue elsewhere.  I am also not an advocate for more taxes however, a blanket land tax, paid by all home owners, would seem to make more sense.  It is a way of guaranteeing revenue each year as well as broadening the tax base for this revenue rather than just relying on those purchasing properties.  Over the 2012-13 financial year $12.841 million was collected in stamp duty, the ABS estimates that as at June 2013 there were 9,226,900 residential dwellings.  Based on this dwelling count, land tax of $1,391.69 annually per residential dwelling would cover the cost of this foregone revenue.  Keep in mind that stamp duty is collected from any property transaction so revenue would be higher when you include land sales and sales of other property types.  This would potentially allow for a reduction in the overall land tax rate per household.

By broadening the base of tax collection governments would provide themselves greater surety of revenue as well as assisting the housing market by reducing the costs associated with those who consider it necessary to move home.  Given the concerns about investor activity in the market and considering they already reap the benefits of negative gearing perhaps a higher rate of land tax for investment properties should also be a consideration for any stamp duty reform.

With home value growth slowing and sales volumes falling, now would seem like the right time to reform stamp duty.  Although the impact of a slowing market won’t be felt straight away, no doubt that in years to come Governments will be left with a revenue hole as the effects of the housing market slowdown hit their tax revenue.  Providing governments with a higher level of guaranteed revenue would seem like a good idea even if it unfortunately would mean an additional tax for everyone rather than for just those buying property.

Note that the ACT is already going down the track of removing stamp duty.  In last year’s budget the government announced a plan to phase out the tax over the next 20 years with rates gradually increasing to make-up for the revenue shortfall.  Over the period stamp duty rates continue to fall.  While the phasing out is commendable I still feel that now is the time to remove stamp duty across the board.

Posted: 20 Jan 2015 01:00 PM PST

Key facts

§ Attendence at auctions important for buyer research

§ Clearance Rates – in 2014 these fell to 68.4%

§ Auctions increased to take advantage of rising market
In many respects the Melbourne auction market last year was better than in 2013. Auction volumes rose 19.7 per cent compared to last year, however the clearance rate fell a small degree from 69.2 per cent to 68.4 per cent.

While there is a great degree of interest in data associated with the auction market, what exactly should buyers be looking at to help inform their judgement?

Firstly, when undertaking market analysis it is important to get as much information as possible and understand the data in context, after all the sale of a new home means something different to the sale of an established one.

Auctions can provide a rich source of information, even if you are not bidding.

Auctions account for around one in five sales in capital cities and nearly one third in Melbourne.

With that in mind there are three important things for buyers to look at from auctions;

Number of Buyers:
The number of active buyers is a slice of the people you are competing against in a given area. If you go to enough open houses and auctions you will get a feel about how strong demand is in an area and that will affect the price you need to pay..

Sale Price (or passed in amount):
Buyers will be able to compare the sale prices with their expectations of price, even if it is passed in. This information will help you make informed judgments about the market when bidding on the home you want. You can then see this data the day after, however it’s far better to turn up and see it live.

Local Auction Conduct:
Auctions can be a high-pressure event, as a result the more you attend the more used to the process you will get which in turn will help you stick to your budget and strategy. Attending auctions in the area you aim to buy in will allow you to become acquainted with the styles of different auctioneers and the level of competition in the area.

Robert Larocca
CoreLogic RP Data Victoria Housing Market Specialist

Email us on info@ljgrealestate.com.au for a free RP Data Comparable Property Analysis for your Queensland Based Properties.

Email us on info@ljgrealestate.com.au for a free RP Data Comparable Property Analysis for your Queensland Based Properties.

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About ljgrealestate 据联大

Removing the Hassle from Sales and Rentals across South East Queensland. Aim to Empower other like minded Property Investors. L J Gilland Real Estate is a prestigious boutique agency specializing in Property Investment Management Services and the Sales of Investment Properties with tenants in place. Comprised of a top performing group of handpicked specialists, our Agents proudly serve Property Investors in Queensland. Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. Carlos and Linda Debello offer property investor's the confidence to sell and lease in any market. We provide comprehensive market appraisals, exclusive multimedia marketing campaigns, and knowledgeable, highly personalized counsel on all aspects of real estate. Our Property Management Team is equally considerate, offering investors with in-depth advise, well-researched rental valuations, and highly professional rental management services. http://goanimate.com/movie/0M4bvcZzgIbI?utm_source=linkshare&uid=0u6RGtWsmlVc Carlos’ direct mobiles are 0400 833 800 & 0413560808. Linda’s mobiles are 0409995578 & 0414978700 (prefer email contact for Linda). Office 07 3263 6085. http://www.ljgrealestate.com.au http://www.yellowpages.com.au/qld/aspley/lj-gilland-real-estate-pty-ltd-14091356-listing.html http://au.linkedin.com/in/lindajanedebello http://twitter.com/GillandDebello http://www.facebook.com/pages/ljgrealestate
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