Victoria’s decision to remove stamp duty has sparked excitement, with many seeing it as a green light to invest in Melbourne property. But before you dive in, there are essential factors to consider, from hidden developer fees to oversupply risks. Understand the full picture to make an informed choice and avoid potential pitfalls.
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This is major news, and people might think that this could mean Melbourne is about to become the best place to invest.
However, I'm here to tell you to proceed with caution before you go ahead and buy one of these properties, so definitely keep reading…
Now, this is big news!
The Victorian government comes out and suggests: Hey, you know what? We've got a fantastic idea—let's scrap stamp duty on all new homes, and maybe we'll just apply it to new buyers. No, maybe we'll apply it to everyone.
Let’s deep dive into what this actually means, and I'm going to try and bring as much value to you guys as possible because I think there are a few concerns. But again, I'm open to learning more about this.
According to a report:
Therefore, if you went out there and bought a house and land package that was just a house, it wouldn't apply to that. But if you bought a house and land package that was part of a strata plan, then you would be able to get this.
Now, we're going to dive into a couple of things that are a bit concerning here, but let's just give them a chance.
The report also added that:
If you go and buy an existing home, it's the total value. So, let's say it's $500k—you'll pay stamp duty on $500k.
However, if you go out there and buy a house and land package, you'll just pay stamp duty on the land. Of course, that's lower than when the completed product is actually there.
Now, that's one of the biggest sales tactics people use when suggesting you should buy off the plan or you should buy a house and land package because you reduce how much taxes you pay upfront when it comes to stamp duty.
Although that's true, there's a bigger concern when it comes to these new house and land packages. (I've spoken about this in great detail. So, if you're in the middle of doing it or you're about to sign up with one of these companies that pretend like they're on your side and charge you nothing upfront or very little, you need to go check out this video.)
Side note: I don't like coming out here and spreading negativity, but I want to protect you guys. My thing is that these things are not good for you. Now, something like this in mainstream media is going to attract average Australians to go and make these average mistakes. These average mistakes, unfortunately, disadvantage so many people, which is why they get stuck, never being able to move forward. It's so sad, and to be honest, unethical when you think about all the mechanics behind something like this.
With that, let’s continue…
Now, the same report revealed that:
Now, who are they asking?
The people they're asking are developers.
Okay, so the developers say: Well, we can only build homes if there's enough of an incentive for someone to buy it, which makes sense.
The reality is, right now, many people can't afford to buy because:
What this would do is effectively reduce how much you need upfront to purchase a property. That seems like a win here, so I'm not sure why Ravi's complaining.
Well, Ravi's complaining because you've just mentioned a couple of things here...
You've mentioned that it applies to investors, and more importantly, it also applies to foreigners. So, that doesn't really make any sense, because if you're going out there and saying: Well, I really want to go and increase how many homes there are here, sure, by going and attracting investors, you're going to get more homes in there, and maybe it's going to lead to more rental properties, which should reduce how much of an effect we have with the rental crisis—that’s a positive.
However, we don't really have too much pressure when it comes to the rental crisis in many areas of Victoria, because there's such an oversupply of property. This doesn’t seem like the issue here.
Equally, a lot of the foreign buyers are just buying the property and keeping them vacant—there's nothing actually happening there.
Because of that, all this really tells me is that there's an artificial push by the government to say: Okay sure, we can go and reduce the land taxes, sure we can go and change the residential tenancy laws, but no, let's go and reduce the stamp duty, and we'll apply it to everyone.
Therefore, first home buyers want to buy their own property—yeah, cool, you can still buy it, but now we're also introducing everyone else.
We're introducing other people like investors and foreign buyers that can come in and say: Well, now they also don't have to pay stamp duty.
In all of this, I’m seeing the biggest winners are the developers and the people that sell the crap that these developers are selling.
Now, I’m not going to generalise here and say everything that’s off the plan is crap.
What my pet peeve is, or the biggest issue I have with how this gets presented, is what will happen if you go to one of these providers, and they’ll say: Look, you can buy this new house and land package.
Often, accountants or really crappy brokers will suggest going and referring you to buy something like this, and what happens is they’ll say: Well, there’s a small fee or there’s no fee at all upfront, and we make all of our money from a marketing fee that the developer pays us.
If they’re getting paid a marketing fee, you should probably ask them how much, because I’m telling you now, those marketing fees are a hell of a lot more than what you think. I know this for a fact because I get reached out to by a lot of these guys, and it’s happened numerous times already.
That marketing fee could be anywhere up to $40,000 to $60,000 in some cases.
Therefore, if you go ahead and buy, say, an apartment for $600,000, and you find out that the marketing fee is $20,000, does that mean your property is actually worth what you paid minus $20,000? The developer is happy giving someone else a marketing fee…
What's worse in all of this—and I get that everyone needs to run a business—but what's worse is that it's very unethical in how it gets presented. If you're going in and saying: Well, we actually don't charge a fee to you; we get paid by the developer, it's the same thing.
You're still going to end up paying as the client or the person buying the property. Now, although it doesn't come directly into my pocket from you, I'll get it from somewhere else, and that just means the property you're buying is not actually worth what you think it is.
This is the biggest issue. Over the last two months, we've had so many people come back after signing up with one of these companies and saying, "Oh my God, this is a big mistake, I'm not sure what I'm doing," and I've just asked them those questions.
They've realised that they're going to be out of pocket by $30,000 or $40,000, whereas they should probably have just bought something existing and had peace of mind because they can go in right now.
What's really interesting is a lot of people will watch this or they'll go and see these media headlines and say, "Oh my God, this is the best time to be buying in Melbourne."
Why would you be buying in Melbourne when they have an oversupply issue?
A lot of markets in Australia have been booming, and it's not due to these areas suddenly having nicer beaches—it's because there's a supply-and-demand situation going on where demand is outstripping supply. But that's not the case in Melbourne or in areas of Victoria.
If you look at this revelation from Nerida Conisbee, the Chief Economist of Ray White Group, ( I actually did a full podcast with Nerida on my *More Than Money* podcast channel. Definitely go check it out here) she goes on to say that Victoria is possibly in a recession.
Additional taxes on property owners to pay back state debt have made investing in property less attractive.
Also, if you look at this graph here, Victoria is the worst performing when it comes to an oversupply or undersupply of housing.
Therefore, if you simply think: Well okay, they've removed stamp duty, now it's the best time to buy, you're going to go and buy something and realise that it's not going to move for the next 10 years.
Despite the fact that it takes time to approve a property and actually have it built, they already have a supply problem, and we're not seeing those increased levels of demand anytime soon.
Is it the right idea to go: Because stamp duty is gone, I'm going to go and buy there because now I think there's going to be a massive boom?
You've got to also realise that a lot of people are going to take this up—because there will be a lot—and they'll say: Okay, based on today's numbers, it's looking pretty good.
However, if this encourages more people to go buy off the plan, the developers have more of an incentive to build more, which, okay, on one hand is great because it's going to bring more housing into the area, but it's bringing housing into an area that probably doesn't need it anyway.
Now, even if it does and it's in areas that maybe lack a bit of supply right now, they lack supply. But when all of these initiatives come into play and you have all of this housing come into the market in the next 12, 18, and 24 months, what do you think that does when it comes to accumulating wealth with real estate on one side?
Yes, it's great you're going to have more housing, but a lot of people in Australia, whether they like to admit it or not, are buying property because they think it's an asset where their money is safe and it's going to outpace any inflation.
Apartments in Melbourne right now are still well below—about 8 or 9% below—where their highs were in 2017.
If you put that into context, we've gone through one of the biggest booms in all of Australian history, and yet we've got housing supply issues with an oversupply causing prices to be lower than where they were almost 8 years ago.
I hope you guys critically look at this and understand that not everything is equal. Having stamp duty removed isn't automatically going to get you into a property that's going to grow, and even if you could get into a property easier, is it the right choice?
These are the sorts of things that I want you to know about, and hopefully, it keeps you protected from buying a dud property.
I hope you guys have learned so much from me in this article.
I'll catch you guys in the next one.
Thanks, guys!
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
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