Regret buying your Airbnb?
Oct 13, 2023Are you feeling the pinch (an almighty pinch that is) from high interest rates and scared of what the future holds for your investment properties? Me too! I’m here to start the conversation so you are informed and know the right questions to ask to make the right decisions for you.
Australia has recently seen a huge surge in housing demand and shortage of affordable homes. Each state has or is working towards implementing new levies and taxes to support the demand. Many Australians are making big moves to avoid being financially stretched with Victoria having the highest sell offs of rental properties in July this year according to PropTrack. The government has a bold approach towards addressing the housing shortage and it greatly effects those who have investment properties. Investors may be pushed to sell or switch from short-stay accommodation to long-term rentals in attempt to fund the rebuilding of government housing and make housing more affordable overall. It’s pretty nerve racking but I’m here to help prompt ideas on what you could do and not do. I highly recommend jumping on the links at the end of this post to undertake your own research to work out what best suits your situation. It’s always worth seeking professional financial advice as these are some pretty big moves and every circumstance is different.
Empty Property Tax
Several states have introduced an empty property tax that aims to incentivise property owners to put their empty properties to good use, for housing or to contribute in someway to the local community. Now, this tax is applied to properties that are left emptied for an extended period of time. In Victoria this levy is applied to designated areas only, inner and middle Melbourne and left vacant for more than 6 months within the calendar year (not continuously). It is an annual fee that is different from land tax, the federal annual vacancy fee and the absentee owners surcharge.
Look into whether this empty property tax is going to apply to you as you will need to nominate your property otherwise there are significant charges if you don’t. Now, if the property is privately owned and used as a holiday home, the owner staying for at least 4 weeks of the year you will most likely be exempt. Similarly, if you are doing renovations where the home is vacant it is not going to be taxed as empty property for up to two years from the date of the building permit. It’s not straight forward, it’s complex so I highly recommend delving into your situation and seeking financial advise.
In NSW, the empty property tax is aimed at unused or stagnant properties that are not used for a productive purpose (say agriculture). Here, the government is attempting to reduce land banking, where investors purchase land but don’t use it, instead holding onto it for future use which in the short term does not contribute to community housing.
It’s super important to keep up to date with what your state is introducing and changing as it might effect your property plans.
Covid Debt Levy
There is also a new tax being introduced from Jan 1st 2024 in Victoria that targets home owners with second homes or one or more investment properties. In other words, they see it as targeting those with the greatest ability to fund the debt after the pandemic. It is a new fat rate tax of up to $975, plus a levy on the value of the land if it is over $300,000. This levy is expected to continue for 10 years as a Covid Debt Levy raising $4.7 million for community housing. So, there are a few changes to consider; the tax-free threshold is being drastically lowered from $300,000 to just $50,000. If you own a home under $300,000 you will pay the flat rate of $975. If you home is valued over $300,000, you will pay $975 plus 0.1% of the value of the land on top. This could equate to $1100-$1700+ more a year. That’s like saying goodbye to your daily coffee purchase.
It's very concerning for homeowners/investors as these are just more costs that are hard to wear in todays climate where your funds are already stretched due to the high interest rates. It’s also extremely concerning for those searching for a property to rent as it’s anticipated to increase rent rates making it more difficult to afford suitable housing in appropriate areas. This doesn’t aid the national housing affordability crisis we are living in. It may however, force investors to sell their properties which if enough do, the supply might make house prices plateau or at least not rise.
Short-stay Accommodation Levy
Victoria’s response to the affordable housing crisis is to introduce a 7.5% levy on revenue collected by short-stay companies such as Airbnb. This is going to be implemented in 2025 and is expected to raise over $70 million annually to fund social housing and encourage affordable housing. Airbnb is pushing the government to include Melbourne hotels to also pay the levy. Short stay accommodation is a large part of Victoria’s economy and tourism industry however it has reduced the options for long term renters and home owners. I know Hannah, who works with me has struggled to find a rental for months now with no real reason other than there was 60+ applicants! She also part owns an Airbnb so is considering her options going forward as to whether it is viable to continue as is or change to long term renting before this levy is introduced. This short-stay levy will most likely be passed onto the tourist/traveler making it less affordable to stay is such accommodation, pushing tourists to hotels and alike. The viability of owning a short-term accommodation will soon be coming with higher risk and cost and should really be weighed up to possibly switch to long term renting or even selling depending on your situation.
These uncertain and changing times will be challenging for investors. It is so important to be diligent and seek financial advice as everyone’s situation is different. Be on top of it and ahead of the game to feel in control and safe during these wavering times.
Vacant Residential Land Tax | State Revenue Office (sro.vic.gov.au)
