This year I will continue to offer a range of topics that I believe are relevant to property investors – ranging from first home buyers to experienced developers. As the level of regulation and taxes increases, it is increasingly important to be mindful of new developments.
As usual, these topics will include:
- Basics – relatively simple concepts from real estate contracts that I know aren’t well understood;
- Problems – a range of problems and sticky situations faced by other clients that you will want to avoid;
- Regulations – changes to laws and regulations that are relevant to property investors; and
- Editorial – comments and observations from me that I hope are relevant and / or interesting.
Vacant Residential Land Tax
This tax was significantly expanded from 1 January, 2025. I covered this is more detail in a previous newsletter, you can find this here.
The reason for revisiting this topic is that owners of vacant residential land in Victoria were required to notify the State Revenue Office on or before 15 January 2025. This is the case even if your land is a holiday home that complies with the government’s use requirements and is therefore exempt. You can access more information from the State Revenue Office here.
California
I personally believe that this tax is poorly conceived for a range of reasons.
To illustrate this, let’s look to the recent and tragic fires in California.
It is reported that, for a range of reasons, backburning and other fire prevention steps were reduced in California over many years. Insurance companies perceived this increased fire risks and responded by increasing their insurance premiums. The Californian government objected and legislated to cap insurance premiums and increases. Insurance companies in turn concluded that the risks didn’t warrant the capped premiums and stopped providing insurance. The Californian government then responded by setting up a government insurer – and in simple terms forced other insurers to underwrite its losses.
The net result of this mess is that many Californians are either uninsured or underinsured. A more intelligent solution would have been for the Californian government to engage with the insurance industry and agree on what fire reduction measures were appropriate.
My point is that I can’t think of a labor politician who doesn’t believe that the solution to every problem is more government regulation. The difficulty is that few politicians have the perspective to properly understand the long-term and indirect consequences of the regulations that they create.
The Australian Parallel
Talk of fires in California may seem irrelevant to Australian Property investors.
However, let’s look at something a little closer to home – the Australian Banking system.
I recently read that Australian banks have largely retreated from all forms of lending bar residential mortgages. This was said to be caused by capital requirements being tied to risk weighting of bank assets. I also suspect that Consumer Credit Code requirements and the Banking Code of Practice are issues that make non-residential lending less attractive.
As a result, a range of non-bank lenders are filling the need for all other sorts of property lending.
If we look at this another way, increasing levels of regulation – designed to make banks safer and to protect consumers from banks – are now causing banks to retreat from large parts of the property lending space.
As a result, non-bank lenders are filling the need for all other sorts of property lending.
There are few capital requirements for non-bank lenders and consumer protections are less rigorous than for bank customers. Certainly, for property developers – my experience is that fees are higher, loan terms are far harsher, and lenders are much more aggressive when defaults occur.
It’s hard to see how all this regulation is really helping property investors. In fact it’s easy to argue that well-meaning, but short-sighted politicians, are throwing property investors to the wolves.
Hopefully, we will see a more enlightened approach from government in the near future. In the interim, if you are relying on a non-bank lender, please approach us for advice BEFORE you sign a letter of offer….
In the next newsletter, we will explore some recent issues that arise from buying house and land packages.
Lewis O’Brien
Your Preferred Property Lawyer