Rumors About a New Vendor Tax on Investment Properties

by Chris Lang on April 22, 2011

Vendor Tax on Investment Properties When I saw a report in The Age about the Gillard Government discussing a new 4% sales tax on investment property and a reduction in negative gearing tax benefits for investors, I simply couldn’t believe my eyes. Are they really going to do this, NOW?

Falling auctions clearance rates and new property listings adding up to the existing unsold stock are already showing that we’re speeding towards a classy buyers’ market. Property prices have changed their stubborn upward trend. It looks like the beginning of winter for vendors already.

A big proportion of the first home buyers seems to have left the market, and if now a vendor tax would be introduced, investors with 2 or more properties in their portfolio would be likely to follow the first home buyers’ lead. I’m not the only one thinking so – Louis Christopher, managing director of SQM Research, seems to have come to the same conclusion.

“A scaling back of negative gearing would likely see property prices fall, but rental yields rise. This adjustment would take about 18 to 24 months, but then investors would return, attracted by higher yields.”

Mr Graham Wolfe, HIA Chief Executive sees the new tax in a different way:

“The suggestion that the Federal Government has plans to introduce a new sales tax on investment housing has all the hallmarks of the disastrous move to introduce a similar tax in NSW in 2004. This tax led to home building in NSW grinding to a halt, a situation from which the state has struggled to recover”, he says.

So the least the new vendors tax could mean is falling property prices for a period of 1 or 2 years. Good news for prospective home buyers, not-so-good news for renters. The rents are likely to go up in this scenario, since there would be less investment properties for lease, which in turn would cause a more fierce competition for the existing rental stock and higher rents.

What do you think about the new vendor tax?

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