Can you save money by diversifying?

We all know that the property market is not one big market. We all know it’s made up of many smaller specialised markets that operate independently of each other. Each State has different results for their markets and therefore they produce different returns.

Another variance between the States is the purchase costs such as Stamp Duty and Transfer fees for example. These entry costs are often cited as reasons for properties being unaffordable and an additional barrier to purchasing property. For investors, the issue of Land Tax is a hot topic and not surprisingly there is no commonality between the States here either.

But we have to ask whether these are reasons enough to diversify into other areas? Is it time to start buying in other States to minimise the Stamp Duty cost while taking advantage of those States with ongoing low Land Tax costs. To answer this question we’ve done some investigating and the results may surprise you.

Let’s look at Stamp Duty first.

For our comparison we’ll use an Investment property valued at $500,000

Stamp Duty$17,990$25,070$15,925$21,330$17,765$18,247.50$12,800$23,928.60
Transfer fee$138.80$1265$1269$3897$258.70$203.05$272$142
Mortgage Registration$138.80$114.90$181$160$168.70$132.52$140$142
Total fees$18,267.60$26,449.90$17,375$25,387$18,192.40$18,583.07$13,212$24,212.60
Difference$8,182.30Most expensive$9,074.90$1,062.90$8,257.50$7,866.83$13,237.90$2,237.30

Clearly, if Stamp Duty was the sole reason for buying then there would be a lot of purchases happening in the ACT. Conversely, Victoria could expect to lose a lot of sales being the most expensive.

From the figures you can see that there is not a lot of difference in the Stamp Duty cost across the board. Aside from the ACT most States are under $10k of Victoria. If you really want to save on Stamp Duty, the ACT is the place to go.

Let’s move along to Land Tax.

The obvious thing about Land Tax is that there are numerous rules and regulations surrounding the calculation and identification of properties eligible for the tax and there are even exemptions available as well. These taxes tend to change almost every year. A cursory glance of the relevant websites will reveal a whole raft of explanations and definitions dedicated to Land Tax. We recommend you take some time to see what the cost will be for the structure you have in mind. For example the Land Tax calculation can change if the property is Commercial or if the Owner is a Trust.

Again, we have kept the investment property value at $500k as our example.

Threshold$549,000$250,000 and above$600,000 and above$353,000 and above$300,000 and above$350 000 and aboveNo minimumNo land Tax
Rate$100 plus 1.6% up to premium threshold.$275 plus 0.2% of amount > $250,000 < $600,000 $0.50 for every $100 or part of $100 above $353 000$300 + 0.25 cent for each $1 in excess of $420,000$1 837.50 plus 1.5% of value above $350 000Calculated as  last 3 years average unimproved  value (AUV) times a percentage factor 
NOTE: For our example we’ve kept it very simple and we recommend you having a look at each States relevant website for more details. This table is not a comprehensive comparison by any means.

The calculation methods for each State range from simple to complex, so using the Government supplied calculator like we did doesn’t necessarily mean you will pay that amount.

Looking at our table, a couple of things stand out. The ACT is clearly the most expensive, contrasting the initial savings on Stamp Duty with the highest annual cost for Land Tax overall. It seems they give with one hand and take away with the other.

You can see that the differences between the remaining States is quite small. You should also factor in that the rates for Land Tax tend to change every year so while you could choose to buy in Queensland or NSW for example, they could introduce new fee structures, changing the dynamics once again.

So having properties in different states can result in less Land Tax, but not by as much as you might think.

In the end it’s clear that the ongoing performance of the property itself is the real reason for purchasing, rather than the perceived benefit of lower taxes. The Capital growth rates and rental yields are the determining factors, far outweighing any tax savings over the longer term. Perhaps what we have actually come up with after all this research is to confirm one of the basic fundamentals of property investing.

Location, location, location!

For a personalised overview on your portfolio or to discuss your next purchase, make an appointment with one of our experienced Property Advisors today.

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