New temporary off-the-plan duty concession
25/10/2024
On 21 October 2024, the Victorian Government announced a temporary off-the-plan duty concession to ease the financial burden for buyers of off-the-plan properties like apartments and townhouses in strata subdivisions.
This new concession is set to last for 12 months and attempts to address ongoing challenges in the Victorian property market, particularly amid high construction costs and interest rates which impact both supply and demand of residential properties.
How does it work?
The concession allows purchasers to deduct construction costs incurred after the contract date from the dutiable value of their property, potentially reducing the stamp duty owed. Unlike the existing concessions, this one will be open to all purchasers, including investors, companies, and trusts—not just first-home buyers or owner-occupiers. The concession is available only for contracts entered into between 21 October 2024 for 12 months ending 21 October 2025.
Who benefits?
- Investors: With the concession extending to investors, who can acquire the property as individuals or via companies and trusts, it could attract more property investments.
- Developers: This could incentivise more off-the-plan projects by helping drive pre-sales, which are critical for securing project financing. The reduced stamp duty may make such developments more appealing to a broader buyer base, providing developers with the upfront sales needed to get projects off the ground.
- Buyers: This will offer significant savings for buyers in strata developments, addressing affordability issues as housing demand continues to outstrip supply.
Potential challenges:
- Limited scope: The concession only applies to strata subdivisions. House-and-land packages and other property types are excluded.
- Foreign purchasers: While foreign buyers benefit from the concession, they will still face the additional Foreign Purchaser Additional Duty (FPAD) which could temper the overall savings for them.
- Limited project pipeline: With ongoing challenges such as rising construction costs and town planning delays, there are relatively few projects ready to be released to the market over the next 12 months. This may lead to developers rushing incomplete or financially unviable projects to market just to take advantage of the concession. The risk? Some of these projects may never get off the ground, potentially causing complications for purchasers.
Overall, while this temporary concession is a positive step towards stimulating residential property development and easing affordability concerns in Victoria it may not provide enough time to drive substantial change in the property market. The property cycle takes several years to recover to market peak. In Victoria, previous off-the-plan concessions lasted from 2008 to 2017 and gave the market a nine-year window to benefit. That extended timeframe allowed developers and buyers to adapt and maximise the opportunities. In comparison, this shorter concession period might not allow for the same level of market stimulation, limiting its overall impact on increasing housing supply and improving affordability.
How SW can help
At SW, our property and stamp duty experts can provide the off-the-plan duty concession analysis and advice to help clients identify the most suitable concession method for their project to achieve the optimal duty outcome for their buyers.
We can also prepare reports and forecasts taking into account the impact of the concession to assist clients in negotiating better terms with banks and financiers.
Please contact us if you have any questions in relation to the above.
