New Stamp Duty Changes for Off-the-Plan Properties in Victoria: A Mixed Bag for Affordability

Victoria's property market is undergoing significant changes aimed at stimulating buyer interest and addressing the housing supply shortfall.

The Victorian government has introduced a temporary stamp duty concession for off-the-plan properties, effective October 21, 2024.

The concession runs for a year and targets the state's property market challenges.

By reducing upfront costs, the Victorian government hopes to stimulate new construction and ease housing supply pressures.

However, while the initiative brings immediate savings to buyers, in my mind it will not address the deeper issue of housing affordability, given the persistently high cost of construction and shifting buyer preferences.

And usually handing more money to buyers just increases demand and property prices.

Key Changes to Stamp Duty for Off-the-Plan Properties

The new concession targets off-the-plan purchases, including apartments, units, and townhouses within a strata subdivision.

Here are the key elements:

1. Shift in Stamp Duty Calculation:
   • Previously, stamp duty was calculated on the total property price, including construction costs. Under the new rules, it will now be based solely on the land value prior to construction, significantly reducing the duty payable.
   • For example, if you buy an off-the-plan apartment valued at $620,000 with the land component at $77,500, you’ll pay just $4,000 in stamp duty—down from $32,000. This $28,000 saving can be a game-changer for many buyers​
2. Expanded Eligibility:
   • Unlike earlier schemes, this concession is not limited to first-home buyers or owner-occupiers. It is open to all buyers, including investors, companies, and trusts.
   • There is no cap on the property value, making it accessible for a broader range of purchases, from high-value assets to more affordable options​.
   • The property must be part of a strata subdivision, which includes shared elements like a common driveway.
   • House-and-land packages are not covered under this scheme​

Timing and Application

The eligibility is determined by the contract date—contracts must be signed between October 21, 2024, and October 21, 2025.

Settlement can occur after this period, but the contract must fall within the specified window​.

The Government’s Goals: Stimulating Construction and Supply

The Victorian government introduced these changes to stimulate the property sector, particularly in urban areas where high costs and slow interstate migration have stifled demand.

Premier Jacinta Allan has emphasised that making off-the-plan purchases more affordable is part of a broader strategy to increase housing supply and ease rental market pressures.

By encouraging pre-sales and reducing initial expenses, the government hopes developers will ramp up construction, providing more housing options for buyers and renters alike.

The Reality: Will It Solve Affordability Challenges?

Despite the immediate financial relief, the stamp duty concession is unlikely to make a significant dent in Victoria’s long-term housing affordability.

As I've already mentioned, handing buyers a "gift" usually encourages them to pay more and this is unlikeley to increase affordability.

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Other factors include why:

1. High Construction Costs:
One of the most significant barriers to affordability remains the high cost of constructing new apartments.

Even with stamp duty savings, the expense of developing new properties often surpasses the market value of established homes, particularly in Melbourne and other high-demand areas.

This cost disparity limits the potential impact of stamp duty changes on broader affordability.

2. Buyer Preference:
Many Australians tend to favour established homes over new, high-density apartments.

This preference is linked to lifestyle considerations, community ties, and perceptions of quality - with off the plan apartments having a poor track record for quality and a terrible track record for capital growth.

I've found Australians generally prefer low to mid-density housing rather than high-rise living, making it harder for developers to find a receptive market for new builds.

3. Development Barriers and Community Resistance:
The government’s broader goal of increasing housing supply is also constrained by NIMBY (Not In My Backyard) sentiments, which limit development opportunities in key areas.

While policymakers often blame NIMBY attitudes for slow housing growth, critics argue that the deeper issues lie in the economics of development and market demand.

This resistance to high-rise construction complicates efforts to achieve a balanced housing supply, despite financial incentives.

Conclusion: A Step in the Right Direction, but Insufficient

I understand that Victoria’s new stamp duty concessions represent a strategic attempt to tackle some of the immediate challenges in the property market, particularly by lowering entry costs for buyers of off-the-plan properties.

However, as I see it, this policy does not address the fundamental issue: the high cost of constructing new apartments.

As long as construction expenses remain elevated and Australians continue to prefer established housing, these changes are unlikely to create substantial improvements in overall affordability.