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The president of the Real Estate Institute of Victoria (REIV) has warned that current tax settings alienate the nine in 10 investors who supply rental homes.
REIV president Jacob Caine stated in a recent opinion piece for the Herald Sun that the Victorian government “will need to consider modernising its property taxation strategy to one that both retains and attracts private investment” if it hopes to successfully deliver 800,000 dwellings over the coming decade.
In particular, Caine focused on the Allan government’s land tax levy, which he claimed “serves as a disincentive to investment into rental property”.
The Victorian government is currently taking steps to expand the vacant residential land tax (VRLT) to properties across the entire state, not just in inner Melbourne. The government described the move as a “financial incentive” for development, while the REIV described it as a “bad way to start a partnership”.
This tax change followed on from Victoria’s 2023 decision to temporarily decrease the tax-free threshold for land tax on investment properties as a way to repay the state’s COVID-19 debts.
“In Victoria, ‘mum and dad’ investors supply homes for nine in 10 renters,” Caine said. “These are regular Victorians who have been fortunate enough to purchase an investment property in the hope of securing their financial future.”
With many investors walking a “fine line” between the ability to keep their investment property and being forced to sell, Caine warned that a tax increase could put a strain on resources.
“Genuine policies designed to retain and grow investment in our state’s property sector will be critical to help ensure the state reaches its ambitious housing target,” Caine stated.
In the lead-up to the Victorian state budget for 2024-25, the REIV recommended the implementation of a land tax exemption for investors who agree to keep their property on the rental market for a minimum period of five or 10 years.
“This simple but effective measure will give Victorian property investors the capacity to remain in the rental market while ensuring long-term rental homes are available,” said Caine.
The REIV also recommended the possible removal of stamp duty, with Caine describing it as a “burdensome and archaic tax” despite acknowledging the “heavy lifting” it does in supplying over a quarter of Victoria’s overall tax revenue.
Caine recommended an increase in goods and services tax (GST) to 0.45 per cent to make up this lost revenue.
The REIV also stated that it “strongly opposes any changes to negative gearing” unless a broader tax reform is on the table.
“Negative gearing has, whether you like it or not, become an intrinsic part of the housing ecosystem. Like any healthy ecosystem, interfering with or removing it could be catastrophic for the entire system,” said Caine.
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