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50k properties to be caught by higher taxes in NSW

20 JUN 2024 By Grace Ormsby 6 min read Tax & Legal

Some of the tax settings changes announced in the state budget could see investors park their money elsewhere, according to a chief economist.

residential properties aerial spi

PEXA chief economist Julie Toth has acknowledged that investors will need to navigate a number of changes to property-related taxes, charges and grants across the coming financial year.

And while tax and policy changes are occurring the country over, Toth noted that the recently unveiled NSW state budget will mean a lot of changes for investors in the state.

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Most notably, it contained a provision to hold the land tax threshold at $1.075 million. As previously reported by Smart Property Investment, the changes apply to both the tax-free threshold and the premium rate threshold, meaning landlords, owners of holiday homes and businesses will wear the tax.

As explained by Toth, “this freezing of the threshold at $1.075 million (unimproved land value) will gradually increase the number of rental properties subject to land tax, as rising property values push them over the threshold”.

So much so, that the NSW government estimates that 30,000 properties will be affected immediately, with the move set to create $1.68 billion in revenue over the next four years.

The move has already been criticised by a number of property industry bodies.

Property Council NSW executive director Katie Stevenson believes the change will “serve only to drive investors out of the market and potentially drive significant increases to both commercial and residential rental costs”.

Tim McKibbin, CEO of the Real Estate Institute of NSW, has also voiced his concern over the “tax grab by stealth”.

He argued it comes at a time when investment encouragement is desperately needed, but believes increasing the tax “will have the complete opposite effect”.

Toth also flagged that the state is hiking the foreign purchaser duty surcharge and foreign owner land tax surcharge, which is set to impact 20,000 foreign-owned properties across the state.

She warned that when combined with the unimproved land value threshold remaining stagnant, “these incremental tax increases may reduce the attractiveness of NSW as a place to invest in property and may reduce the number of homes available for rent in the private sector”.

Despite her concerns, the chief economist has welcomed the state government’s plan to build 30,000 affordable, social and rental homes on surplus government land.

“Once completed, this will help to boost housing supply, as will an additional 400 new build-to-rent dwellings for essential workers,” Toth raised.

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“Additional resources for the housing commissioner and a new rental taskforce to oversee NSW’s 1 million residential rental properties will help to improve security of tenure, and affordability, for renters.”

You can read more about the NSW state budget measures here.

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