23 Jun Apartment market shake up
If you are thinking about buying an apartment “off the plan” you better hurry as one of the key financial incentives is about to disappear. On 1st July 2017 the stamp duty concession for “off the plan” investment apartments will disappear for both domestic and foreign purchasers.
For many years developers have promoted “off the plan” apartment sales with the catch cry of “significant stamp duty savings”. Essentially if you entered into a contract to purchase an investment property before construction commenced, the stamp duty on completion would be very low and well below an existing property investment.
For example, if you buy an existing residential investment property for $500,000 the stamp duty is about $25,000 for a domestic buyer and about $60,000 for a foreign buyer. But for “off the plan” sales the stamp duty has up until now be significantly reduced.
The Andrew’s government changes to Victorian Stamp Duty laws mean after 1st July 2017 the stamp duty you pay for a residential investment property will be the same regardless if it is purchased “off the plan” or existing. For foreign buyers, the duty for apartments will increase to about 12% which includes a surcharge of 7%.
As you can imagine developers are not happy. These changes are on top of the tightening of bank lending driven by APRA, new planning controls in Melbourne City Council and updated apartment guidelines, which is making the case for new apartment development harder and harder.
There are also changes on stamp duty coming in to play on 1st July for first home buyers which removes all stamp duty for purchases under $600,000 and tapered discount for purchases up to $750,000 but this is unlikely to have much impact on the market.
With Melbourne’s population continuing to grow at over 100,000 per year (135,000 y/e June 16) and the government’s own planning estimates requiring an addition 45,000 new dwellings per year, the imminent changes to stamp duty will place further pressure on an already tight housing and apartment market.
There will be apartment projects that will no longer be feasible to build because they won’t be able to achieve the required level of presales normally taken up by investment buyers. While owner occupiers will buy “off the plan” they are now agnostic between existing or “off the plan” when it comes to the stamp duty costs.