Will the land tax reform of South Australia make it attractive to investors?
There is a news about reforms in land tax regime in South Australia by liberal government. Anybody who owns an investment property knows this terminology very well and if you are not aware and you are thinking of investing in property , you should try to understand it properly.
Land tax is not a big issue for any property investors if their investment property doesn't have much land value, as this tax is calculated on the land value. Being a property investor you want your property to grow in value but once it reaches to a certain threshold , it comes under a land tax based upon how high the land value is from the threshold.
The graph in the above picture shows how land tax threshold has changed in the last 8 years in South Australia. Obviously the capital growth wasn't much from year 2011- 2015. Once the low rate interest regime came , the land values started picking up and the threshold was increased as well.
Now the present government of South Australia is proposing an increase in the threshold from $353,000 to $450,000 from 1st July 2020. They will also cut the top marginal rate of 3.7 % to 2.9% . It is nationally acknowledged that South Australia is the most expensive state when it comes to land tax on your investment property . The current rate is above the national average.
How cutting it down will change the sentiment of the property investors? Will it really stop South Australians from investing in other states as their home state is offering better threshold? Does that mean you should still buy all your investment properties in South Australia?
If the government thinks that land tax threshold change for property investors will bring more investors and make the property market grow, then what will happen to first home buyers who are always blaming the higher prices and being priced out by investors?
It is confusing to understand that on one side the governments blame negative gearing benefits for investors responsible for high house prices and at the same time an increased threshold is perceived as a shot in the arm for the South Australian economy. With low population growth and low business investment in the state , land tax reform alone will be a tiny drop in the ocean.
Property investors will always invest where they get more capital growth for their investment. By thinking that higher threshold will stop South Australians from investing in eastern states, is not convincing .
We can even say that the state government kind of believes that the increase in house prices will get affected by higher rate of interest ( whenever that happens), hence it makes sense to increase the threshold to bring more investors from other states where the housing market is starting to cool off.
In my opinion higher land tax threshold alone won't do wonders if the state doesn't get more business investment , increase in population and job opportunities. After all, the tenants for investment properties in South Australia will be local and not interstate people. You can't afford a mismatch of supply being more than demand( if it really happens) as in Sydney market.