Following on from last week’s update (which you can read here.)
I’ve had an increasing number of buyers call me over recent weeks asking if they should buy at this stage of the land cycle.
Values in Melbourne have come back to a point where the city looks comparatively affordable.
It’s attracting a large share of first home buyers, and with population growth still strong, and vacancy rates low – it’s also sparking interest from some speculators.
However, we’re also nearing the peak of this cycle – so anything you purchase now, needs to give indication that it will benefit from the inflationary surge that a drop in rates (following the recession into 2028) is going to gift in terms of land price inflation, through the first half of the next cycle (2030-2037/8).
The lower prices in Melbourne are as a result of higher land taxes.
The Victorian land tax surcharges, called the "COVID-19 Debt Repayment Levy," were introduced to help pay off the debt the government took on during the pandemic.
The extra taxes apply to properties above certain value thresholds. The plan is for these surcharges to run from 2024 to 2033, lasting 10 years in total.
Will they ever be removed? Who knows – governments are not keen to remove taxation once implemented – no matter the initial spruik.
Therefore, if you are thinking of investing now (or, even better, in the turn into the first half of the next cycle) what are the options if you want to target a property with a smaller land component and/or a better yield to ride out this cycle – and the next?
When it comes to the enquiry I’ve received.
- Some want to live in the property for a short period of
time. (First home buyers often fall into this demographic).
- Some need to balance yield against capital growth (they cannot afford to
negatively gear.) They need to be positively or neutrally geared.
- Others just want a low maintenance option that they can sit on until it’s time
to sell – a “set and forget” as we call it in the industry.
- And some may want to look at commercial real estate for the better yields it
can offer.
What all the above demographics have in common, is a desire for the price of the property they are buying to go UP, not down or sideways.
Therefore, this guide is a starting point of what you should (and shouldn’t) buy if you want to mitigate higher land taxation with a smaller property or a property gifting higher incomes.
In this regard – this report is not going to focus on what I have advocated previously – maximising the land/locational value of the site by buying suburban residential housing on land that is ripe for subdivision/development!
That’s an excellent strategy for long term capital growth to build your portfolio – but it also has lower income returns that some investors (in a high interest rate environment) cannot afford.
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