A warning for Queensland property investors

Thursday, 23 December 2021 — Albert Park

[5 min read]

Dear Reader,

A warning to all the investors eyeing up Queensland’s property market.

The state has had a boom on the back of interstate COVID migration, with more people moving to Queensland than any other state or territory.

Take a look:

As a result, Queensland’s residential land prices have rocketed up $41.2 billion in the past financial year.

In fact, over the two troubled years of the pandemic, they’ve gained some $74.7 billion.

That’s almost double national banking profits!

It’s hard to say how much of that increase came from out-of-state speculators bidding up prices, but I’ll bet it’s been a big influence!

I know many have been property shopping in QLD based on expectations of further increases in lieu of the Olympic’s infrastructure build-out.

However, things are about to change.

An investor called me a couple of days ago.

He told me he was considering purchasing his next property in Queensland, but after hearing the latest policy shift from the state government, has now reconsidered.

Queensland Treasurer, Cameron Dick, has moved to close one of the loopholes many property investors use to dodge hefty land tax bills.

That is, using the land tax thresholds in each state and territory to keep assessments low.

Every state and territory levies land tax (aside from the NT).

It’s levied on all investment properties — including holiday homes and non-residential holdings.

The tax is calculated on the total value of all taxable land above the land tax threshold.

That means if an investor owns all his properties in the one state, let’s say NSW, the land tax would be significantly higher, than if the properties were spread over four states, thereby taking advantage of the tax-free thresholds.

Last week however, Treasurer Cameron Dick announced a ‘tweak’ to the rules.

This means that the value of property investments in other states or territories will now be taken into account when assessing the taxable component of land in Queensland.

In other words, if you own properties in Victoria as well as Queensland, your Queensland property will fall into a higher tax bracket than it would have done under the previous rules.

‘At the moment, interstate property speculators can claim the tax-free threshold and take advantage of lower land tax rates in multiple states.

‘That means these investors can amass multi-state portfolios that fall below the land tax threshold in any single state.

‘Queenslanders, with their entire landholding in this state, can end up paying more tax than these interstate investors.

‘So young families in places like Logan and Ipswich face unfair competition from Sydney-based speculators who are flipping properties around the country at a furious rate."

‘For example, an individual with taxable landholdings of $1 million in Queensland would pay $4,500 in land tax (or an average rate of 0.45 per cent).

‘Another individual landholder with $600,000 in taxable land in Queensland and $400,000 in NSW would only pay $500 in land tax in Queensland and no land tax in NSW at current thresholds.

‘“We’ll close that loophole while ensuring there are no land tax changes for Queenslanders who own land wholly within our state,” the Treasurer revealed.’

Put simply, Queensland is going to start collecting more of the economic rent from land.

The move will undoubtedly have an effect on the state’s property cycle.

Not to the extent that prices will slide backwards…but I would expect the gains we’ve seen over the last two years to slow.

Investors that own land inside and outside of the state’s borders will likely have an unpleasant shock when they get their next land tax bill.

Some will consider selling no doubt!

Bottom line: if you’re considering a purchase, I’d be giving Queensland the flick for now and eyeing up other states such as Perth instead.

Best wishes for the New Year.

Regards,

Catherine Cashmore,
Editor, The Daily Reckoning Australia

It could be almost anything, of course.

A stock market crash. A sharp rise in bond yields. Extreme weather. A new ‘variant’.

The Omicron variant, for example. An internet search this morning turned up a total worldwide death count of eight people — seven in the UK, and one in Texas. Not exactly the end of the world.

But when you have a degenerate empire sinking into an abyss, you go with the emergency you have on hand.

And those are just the known unknowns. As for the unknown unknowns, the woods are full of them. Today, we return to one of the most plausible…and most alarming.

The Fed claims it has begun a tightening cycle. That means it will be throwing less gasoline on the inflation fire than before — but still about US$3 billion per day of new money. It says it will reduce the amount of new money creation gradually, and then stop it altogether in March of next year. Then it will consider raising its key lending rate — the real rate, adjusted for inflation, is currently 6.5% below zero.

No serious person believes these baby steps will relieve the upward pressure on prices. Certainly, investors don’t believe it. Yesterday, shaking off Monday’s shivers, they bid up stocks…as if they hadn’t a care in the world.

And the Biden administration, backed by the Democratic party, and the whole elite establishment, says what is needed is more spending, not less. There are more emergencies that need to be met — with money, of course. ‘Social infrastructure’. COVID. Climate change. A record Pentagon budget…and maybe even war with Russia, China, North Korea, or Iran.

Fitter, happier, more productive

According to the fantasy, more boondoggles will contribute to growth — which as we all know, is the same as progress — with a chicken in every pot…free lunches all around…diversity, equality, and equity for all, necking in the parlour and dancing in the street.

As for ‘growth’, the idea that a group of politicians can create real economic progress by printing up money and passing it out to their cronies, friends, and pet projects has been around for a long time. But if they could really do that...what have they been waiting for?

Of course, they haven’t waited at all. In this century, the US government, aided and abetted by the Federal Reserve, stimulated ‘growth’ more than any time in the US’s history. US debt has grown by more than US$23 trillion since 1999 — a 300% increase.

But look out the window. Do you see dancing in the streets? Are people more prosperous than they were in 1999? Happier? Freer?

We didn’t think so either.

Instead, the rich got richer…growth rates fell…and markets became more bizarre and erratic. Wall Street had to be bailed out in the emergency of the housing debt crisis of 2008–09.

And then, the whole economy had to be bailed out in the COVID shutdown emergency of 2020, and on...and on...

And now, the public, betrayed by its leaders and now bearing the cost of so much ‘emergency’ spending in the form of higher consumer prices, is becoming surly and ill-tempered.

But steeped in the holiday spirit, as we are, we are loath to sink into a pit of despair and spoil Christmas. We’ll save that for January…

This week, we’ll just keep rolling merrily along, doing our best to keep a straight face and a positive attitude.

But just to give us all a fair warning, we see a very dangerous intersection ahead — and a new emergency.

Out of energy

From one direction come 7 billion people…almost every one of whom depends on the traditional fossil fuel that made our modern economy possible.

From the other comes the Fed’s inflation…distorting the prices that the energy industry needs to keep supply in balance with demand.

And there…at the crossroads itself…is the US government directing traffic!

We hardly need to say so, but in today’s world, distributing food, providing shelter, and delivering energy — with its factories, trucks, tractors, electric lines — runs mostly on fossil fuels. Take them away, suddenly or haphazardly, and the result is likely to be widespread misery.

The delivery mechanism for energy, as for other things, is exceedingly complex…with millions of components all working together, all over the world, with different climates, different religions, different languages…and all guided by prices. If prices go up, supplies generally follow. If they go down, so too go supplies.

But now, a menace we haven’t seen in the US for nearly half a century — inflation — is corrupting price signals. Suddenly, prices are going all over the place. The price for a gallon of gasoline, for example, gained more than 50% over the previous year. And last week, Goldman Sachs’ head of energy research said the price of oil could go to US$100 a barrel next year.

But instead of going up in response to higher prices, energy supplies are headed down. Rystad Energy:

‘Global oil and gas discoveries in 2021 are on track to hit their lowest full-year level in 75 years should the remainder of December fail to yield any significant finds, Rystad Energy analysis shows. As of the end of November, total global discovered volumes this year are calculated at 4.7 billion barrels of oil equivalent (boe) and, with no major finds announced so far this month, the industry is on course for its worst discoveries toll since 1946. This would also represent a considerable drop from the 12.5 billion boe unearthed in 2020.’

After working so fluidly for more than a century with only very few problems, all of a sudden, it looks like supply and demand are bound for a collision.

That will be a genuine emergency.

Stay tuned...

Bill Bonner,
For The Daily Reckoning Australia