Why did land values go backwards in NSW while property prices boomed?
The NSW valuer general, who sets land values for rating and taxing, found an overall decrease of 1.6 per cent in the year to July.
The report attributes the decline to interest rate rises, inflation and increasing construction costs.
However, CoreLogic data shows home values rose 11.1 per cent in Sydney and 2.4 per cent in regional NSW across 2023.
So, how is the discrepancy explained?
It comes down to when the data was captured, according to Chris Martin, a senior research fellow at UNSW’s City Futures Research Centre.
The valuer general’s report straddles the second half of 2022 and the first half of 2023.
“[The report] reflects that there was a decline in the market generally after the RBA started its series of interest rate increases in May ’22,” Dr Martin said.
He said it followed a couple years of “very strong” house price growth during the pandemic.
“As it happens, prices have started increasing again through the most recent calendar year, so we’ll probably see in next year’s report higher land values recorded.”
What can property owners expect?
With the valuer general’s figures used to apply council rates, can ratepayers expect any reprieve?
Not unless values fall for a few years in a row, said Shanaka Herath, a senior lecturer housing economics at UTS.
“Usually, the council rates are calculated on a rolling basis, on three averages,” Mr Herath said.
“If we see, for example, land values declining in the next two years, then that will be reflected in lower rates.”
According to the valuer general, all NSW councils are using July 2022 land values for setting rates.
But Mr Herath said the 2023 reduction in land values would be reflected “at least partly” in land tax rates.
“[That is] because we didn’t see any consecutive increase of three years,” he said.
“But it won’t be substantial. To see a substantial reduction in rates, then we will need to see [lower land values recorded] next year, and probably the following as well.”
Property owners are exempt from paying land tax on their primary place of residence, and it only applies to properties where the land value exceeds a certain threshold (currently $1,075,000).
Dr Martin said most NSW landlords do not pay land tax.
“It’s about one in six,” he said.
Mr Herath said people should not get too excited about land values reducing for just one year because values are cyclical.
“If you look at the five-year, 10-year average, those will certainly tell us that there’s a significant upward trend.
SOURCE: ABCNEWS