Looming crisis in land values
Raine & Horne Commercial Newcastle
In my 25 years of selling and leasing real estate, I have learned a few valuable lessons.
One lesson involved never trusting an owner who provides only a verbal estimate of a property’s outgoings. Remember outgoings can include council and water rates, insurance, land tax and body corporate fees. There will also be management fees, nonstructural maintenance such as cranes, air conditioning, other plant and equipment, gardening, fire safety and so on.
My client, let's call him John, told me his outgoings were no more than $7,000 p.a. These expenses were passed on to the tenant and the solicitors and a lease for $55,000 p.a. plus outgoings and GST was prepared, signed and the tenant happily moved in. The building was on a busy road which the tenant needed for their business.
As we were appointed to manage the property, we required copies of all the outgoings. We finally pulled this information together and to our horror, and the surprise of the tenants, the outgoings were $26,000 p.a. – almost half the value of the rent.
Why were they so out of kilter? Over time John was patting himself on the back congratulating himself every year as his land value came in – and was perpetually increasing. It was a great buy, and the government was proving that to him.
However what John failed to realise was that each time his land rose in value so did his land tax and council rates as both imposts are tied to the value of the property. The only properties that won't incur a land tax impost are:
• your home
• your farm, known as primary production land
• any land with a value below the taxable threshold
How is land tax calculated?
Land tax is calculated against the total value of your taxable land above the threshold, which is $629,000. The amount of tax paid is $100 and 1.6% of the land value between the threshold and the premium rate threshold, $3,846,000, and 2% after that.
For the Newcastle local government area, a minimum charge of $896.30 is levied, plus a waste charge of $231.58. Additionally, there is a $25 per 350 square metres of land fee for stormwater services that totals $1,152.88.
Then 1.6681% of the value of property plus an extra special levy depending on your location will apply in some areas.
That means for every $100,000 of land value increase above the threshold you or your tenants need to find $3,266.81. This impost is an extra charge that shouldn't be sniffed at by landowners.
However, spare a thought for Hunter Street owners where land value has surged from $820,000 to $1,850,000 in one year. This increase equates to an extra $33,648.14 in land tax.
The moral of the story is that whether you’re a tenant or an owner, monitor your land value and remember you only have 60 days from receiving your notice to register an objection.