Infuriating tax the 'final straw' for Aussie landlords: 'From $307 to $3,096'

Landlords are fleeing Victoria’s property market as they are hit with higher land taxes. Some landlords are passing on the higher costs to renters, or leaving the market altogether.

Garry Salathiel has two investment properties in Wangaratta, a country town in northeast Victoria, with one currently rented out. He told Yahoo Finance skyrocketing land taxes were putting his finances under pressure.

“Land tax has gone from $397, to $600, to $3,096 in the last three years,” he said. “The $3,096 absolutely floored me.”

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The 72-year-old builder has planned to retire later this year and said higher land taxes meant he was now considering selling up. He has drawn from his superannuation savings to help pay off his mortgages and now doesn’t have any more cash to spare.

“This is the last straw … I’ll have to sell something to live. So when I retire, something’s got to go,” he said.

In the meantime, the dad-of-four said he will have to pass on half of the increased taxes to his existing tenants. He acknowledged some people won’t agree with his decision, but said he can’t keep absorbing the extra costs himself.

“I’m just giving heaps and heaps and heaps of it away to the government for nothing. I’m paying a real estate agent, I’m paying the council, I’m paying insurance, I’m paying the land tax. There’s nothing left,” he said.

Land tax clawing $5.65 billion from investors

The Victorian government hiked land taxes at the start of the year as part of a temporary measure to pay down COVID-19 debt.

Victorians who own a second home or investment property now have to pay a $500 annual tax for properties with a land value of between $50,000 and $100,000.

That increases to $975 for homes valued between $100,000 and $300,000, plus 0.1 per cent of the land value for properties worth more than $300,000.

The government forecast that 860,000 Victorians would be affected, including 380,000 first-time taxpayers. It’s expected to claw back $5.65 billion through the tax.

‘Huge impact’ on landlords

James Kirkland, general manager of sales at Little Real Estate, said higher land taxes were having a “huge impact” on Victorian investors, with many deciding to sell.

“Our percentage of investments coming to market in Victoria is by far the highest percentage. As we talk to investors and consult with our clients as to why, it’s largely to do with the holding costs and the impact it’s having on yields,” Kirkland told Yahoo Finance.

Cairns property investor Arianne Endrizzi said the land tax on her Victorian investment property increased to more than $1,000 this year. She said her tenants' decision to move out of the property was the final push she and her husband, Chris, needed to sell the Red Cliffs property.

“Had it not been for the land tax, I think we would be fine,” the mum-of-two told Yahoo Finance.

“Financially it doesn’t make sense so as soon as the tenants wanted to break the lease to buy their own place, we decided to put the house on the market.”

Endrizzi owns four properties, including the Victorian property and one property which is co-owner with her mother.

Investors loans have grown in value across all states and territories in the last 12 months, the latest Australian Bureau of Statistics data.

This was driven by New South Wales (up 27.3 per cent or $901 million), Queensland (up 34.5 per cent or $587 million) and Western Australia (up 56.7 per cent or $428 million). In comparison, Victoria experienced slower growth (up 9.4 per cent or $199 million).

On the upside, this is being offset by an increase in first-home buyers in the state, with the number of loans up 6.5 per cent in June.

Tax to have flow-on effect

Salathiel said he doesn’t think the government understands the huge impact the tax will have on not only landlords. He said he is managing the tax by paying it off in installments, rather than a lump sum.

“It’s going to flow out in lots of other directions. If 10,000 of us are going to decide to sell their houses, that 10,000 lots of land tax they didn’t get, 10,000 lots of agents who didn’t get the fees. It has a huge effect. It’s not just a little problem,” he said.

“The government is trying to rein in inflation and they’ve just added 10 per cent to everybody’s rent. It’s just ridiculous.

“That’s not going to hit for another year because everyone is still in a cycle of a 12-month rental.”

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