Toorak has been in the news – only 5 properties are currently publicly advertised for sale in the exclusive suburb, ensuring scarcity delivers daunting prices.
The Domain wrote in glowing terms about a $7m profit on a tennis court held over 20 years.
It is not uncommon for Toorak residents to own an adjacent property as it is seen to protect their amenity and privacy. The practice is then reversed when the owner chooses to recoup their investment.
Prosper sees through such niceties to the raw economic perspective. This is nothing more than a typical land banking play. Our 2017-18 Victorian Budget Submission stated:
Prosper sees the Principal Place of Residence (PPR) exemption from land tax as one of the most behaviour distorting tax concessions. Separately titled land contiguous with a PPR and used solely for private benefit is also deemed exempt under the Land Tax Act.
Multiple titled holdings can come about in a number of ways and from a range of landholder intentions. Some are … land holders buying more open space – for a vegetable patch, a tennis court or simply to distance themselves from neighbours. For others again, this is a form of land banking sheltered from tax by the PPR exemption.
This landholder made over $7m profit in 20 years. That’s equivalent to $350,000 per annum in earnings. As part of the primary residence, no capital gains tax was liable, nor land tax.
Why are these earnings prioritised over those trying to work for a living or run a small business? Such landholders should be paying a significant land tax.
In another tip to how irrational land and housing prices have become, a foreign investor paid $40 million for a Toorak home last week.
This mansion was purchased by a foreign investor with the following costs to be added onto the $40 million price tag:
- $412,000 in Foreign Investment Review Board application fees
- $5m in Stamp Duty (with the 7% foreign investor surcharge)
- possible $370,000 annual land tax bill (if not the primary residence)
- a possible $300,000 in the vacant residential property tax
A local would pay just $2.2m in stamp duty.
These costs indicate such a purchase is barely an economic decision.
One can only hope that such outrageous offers on Australian real estate has little to do with the low level of purchasing transparency. Australia is the easiest place in the west to launder money through property, as per this Renegade Economists radio show with the Tax Justice Network’s Mark Zirnsak.
