Any property investor watching the news over the past few weeks will undoubtedly have an opinion about the Queensland Government’s attempt to amend its land tax legislation. Of course, their move proved to be a dismal failure in terms of the planned process, and in the court of public opinion as well.
There should be some hard lessons for politicians in the wake of its dismissal, but what can property investors learn from this policy embarrassment?
Here are a couple of teachings we should all take to heart.
QLD Tax Changes
For those who need a refresher, the Queensland Government implemented changes to its land tax guidelines which were, in their words, “designed to close a loophole.”
The housing minister, Cameron Dick, reasoned that investors who owned property in Queensland while having holdings in other states and territories were gaining an unfair advantage. He reasoned the entirety of the investor’s national portfolio value should be utilised in calculating their land tax liability in Queensland
Apparent it would be fair and reasonable, according to Mr Dick, for his government to include property that wasn’t even within his home state (i.e. land which gained no benefit from Queensland Government expenditure) when calculating how much tax an investor should pay them.
Obviously, “loophole” in this case was double speak for “tax grab”.
Despite their best efforts to fly these changes under the radar, well-informed landlords and their representative associations caught on.
A wave of blowback was delivered with commentary from landlords, economists and other stakeholders delivering a devastating assessment of the changes. The association I’m part of, The Property Investment Professionals of Australia (PIPA), led the charge. PIPA demonstrated, via the results of our 2022 Investor Sentiment Survey, that investors would leave the state in their droves if the changes proceeded – right in the middle of a historic rental crisis.
The final nail in the amendment’s coffin came when other state governments publicly denounced the changes and confirmed they wouldn’t assist Queensland by providing property ownership information from within their borders.
Tough learnings
The lesson for politicians should be obvious.
Firstly, don’t mess with property investors who are the lifeblood of your rental supply. At the very least conduct meaningful consultation with them about any proposals that may impact their financial security.
Also, don’t announce a policy that isn’t fully funded and doesn’t have the express support of other levels of government if you are going to need their assistance. Doing so, then watching it fail, makes you incompetent.
But there is a valuable lesson here for property investors too, and it’s this…
Don’t live on the financial edge!
There was a raft of investors who offloaded their Queensland property holdings during the first half of 2022 in anticipation of the tax changes. Those who sold paid extraordinary costs in marketing and agent fees as well as professional services like conveyancers. They’re also likely to have a CGT liability.
And for what? To avoid a few extra thousand dollars in tax each year? Worse still, they did it before common sense put a stop to this ludicrous policy. By selling their property they’ve missed out on exceptional rent increases this year, as well as much tighter vacancy rates and future capital gains.
We saw the same thing when COVID hit, and many landlords liquidated assets at discount prices because they thought the market would tank. If they’d held their nerve and ridden out the ups and downs, they’d have been tens of thousands (if not hundreds of thousands) of dollars better off.
So, don’t live on the edge. Be capable of financially weathering small storms.
In the future there will likely be times of legislative changes, interest rate rises, sudden maintenance issues, stagnant rents and extended periods of vacancy. You must be prepared to see these through because it’s the long-term retention of your portfolio that will deliver the best outcomes.
There are plenty of practical steps you can take to stay stable in times of uncertainty too.
Well before something unexpected occurs, you should have buffers in place to deal with potential problems. This includes allowing for an additional three per cent or more in your loan’s current interest rate. Could you deal with this based on your existing household cash flow?
It also means having three to six months of running costs and loan repayments in an offset account so you can access funds in an emergency.
I’d also advise against overextending your credit arrangements to the point they threaten your borrowing capacity.
It means ensuring your property’s rents are at market price too.
If you live on the edge and invest without the right advice, you can make knee-jerk reactions that will end up being detrimental to your financial future.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy. Never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933
