Is it time to sell an investment property this Spring?
Spring is usually a busy time in Melbourne for those thinking of selling or buying and this year seems like it will be no different. However we believe this year may be particularly busy with the sale of investment properties. There are a number of reasons that we are seeing an influx in the sale of investment properties including, but not limited to, the cost of living pressures, increase in land tax and the introduction of the Vacant Property Tax. If you are thinking of selling your investment property this Spring here are some things you should consider before putting your property on the market:-
Land Tax
New laws introduced as of 1 January 2024 prevents the adjustment of land tax between the vendor and purchaser on Contracts for the sale of land, except for contracts in excess of ten million dollars. This means that when selling your investment property subject to land tax you will no longer have the right to have this apportioned between you and the purchaser. You will be required to pay all outstanding land tax associated with the investment property being sold at settlement. This is particularly important if you are negotiating a sale before or after the next assessment year especially if you wish to avoid paying a further year land tax. It may be worthwhile negotiating an earlier settlement date prior to Christmas 2024 to save yourself additional land tax for the 2025 assessment year. Land Tax is re-assessed on 1 January of each year.
Vacant Property Tax
Properties that are vacant are subject to a Vacant Residential Land Tax. From 1st January 2025 the Victorian Government will implement changes to the Vacant Residential Land Tax which will apply to all properties that have not been occupied for six months, in the previous 12 month period. This means that if your property is vacant for more than six months, between 1st January 2024 and 31st December 2024, you may be affected by this change. Properties that are deemed to be vacant are taxed at a rate of 1% of the capital improved value of the property in the first year, 2% in the second year and 3% in the third and subsequent years. By way of example, if you have a vacant property with a capital improved value of $1 million dollars, the vacant residential land tax would be $10,000 in the first year, increasing to $20,000 in the second year and $30,000 in the third and subsequent years. There are some exceptions to this, including holiday homes that are occupied by the owner for at least four weeks each year and change of ownership during the year.
Get in touch with your Conveyancer or Property Lawyer
It’s ideal to instruct your Conveyancer or Property Lawyer at least 2-3 weeks prior to putting your home on the market. Things that your conveyancer or property lawyer may need from you to Complete a Section 32, Vendor Statement include:-
· Details of any structural or non-structural works completed to the property over the last 7 years. There may be further requirements in this respect and your Conveyancer or Property Lawyer will be able to guide you
· If your home was built less than 7 years ago there are additional requirements including Domestic Building Insurance, Occupancy Permit and Building Permits
· Copy of pool/spa registration and pool/spa barrier compliance
· Any easements or covenants on the property, and checking to ensure that there has not been any non-compliance
· If you’re selling a unit within an Owner’s Corporation, there is a requirement to include up to date Owner’s Corporation Certificates. You should note that it will disclose any costs which may be upcoming or special levies which may be payable in the future. It is important to be aware of those as any future works may affect the sale of your property and negotiations
· What services are or are not connected
Early access to the deposit paid under Section 27 Deposit Release
If you are wishing to apply for the early release of the deposit by the purchaser, you need to ensure that you are aware how the Section 27 deposit release process works, so that there are no unexpected surprises. You should discuss with your Conveyancer or Property Lawyer at the time of instructing them that you would like to access the deposit prior to settlement, so that they can step you through the process and discuss whether you meet the appropriate criteria. There is a common assumption that your deposit can just be released once the Contract of Sale is unconditional, however this is not always the case, and in most circumstances not very common.