Land tax about to increase: 1.4M notices sent to Sydney property owners

Falling property values will leave homeowners with inflated land tax valuations that don't reflect the state of the market, warns the NSW Valuer-General David Parker. Mr Parker acknowledges that more than two-thirds of the 2.1 million valuation notices will be issued for residential properties in the Western Sydney region alone.

Mr Parker expects an “avalanche” of objections. Though dwelling prices across Australia’s capital cities are down 1.3% according to CoreLogic, they are 1.7% higher than last year and around 20-30% higher than their last valuations.

Any objections will need to be from the perspective of a property valuer, with clear reasons why the Valuer-General's valuation is wrong with an evidence-backed proposal for a new valuation. Falling property values against sky-high valuations will inflict pain on cash-strapped borrowers. With HSBC’s Paul Bloxham predicting a 300-basis point rise in the cash rate to tame inflation, around 30% of borrowers would pay 40% more on their mortgage. This disproportionately affects those on lower incomes and those at risk of mortgage stress.

Property valuers will be in high demand as owners seek to justify a lower valuation with supporting reports. However, a low property valuation does not favour the property market. Even though a lower valuation will mean less land tax, valuers that perceive a significantly lower market value of a property can be a threat to an existing mortgage over the property.

"The work of valuers is crucial to lenders as valuers determine a property's suitability as security for a loan and ultimately determine the amount you can borrow based on the LVR. This is the ratio of a loan amount to the overall market value of the property. So as valuations move further away from the value of properties at the beginning of a loan, lenders may require owners to contribute savings to reduce their mortgage in line with the fall in the property's value," says Ulrika Lobo, director of Sparrow Loans.

“Most people aren’t aware of how important property valuers are, but they play a crucial role in our financial system. Their opinion on the value of property keeps the gears in motion,” Ulrika said.

“Valuers have a difficult job putting a value on a property. In the current market, property values are in flux, and it is hard to determine what a property will be worth in a year or even the next three months. This makes valuers a gateway to finance and a bottleneck in refinancing mortgages."

"In the interim, owners with existing mortgages can take advantage of a bleak outlook for property values to reduce their land tax while praying the valuer is wrong at the same time,” says Ulrika.

Strong pushback from property owners is expected in the coming months. Objections that are not accepted will see those property owners paying higher land tax repayments as land values are recalculated.

"With property values expected to fall further as interest rates tighten, the issue of accurate valuations will become a more pressing concern."

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About Ready Set Debt: Hosted by Ulrika Lobo, Ready Set Debt is a podcast that opens the lid on the stunning world of borrowing and investing in debt.

About Sparrow Loans: Sparrow Loans delivers fast and flexible short-term loans to support your business.

About Ulrika: Ulrika Lobo (BA, BE, MBA, MAppFin, DipFMBM) is the director of Sparrow Loans, achieving the Entrepreneur of the Year Award from WSW Awards in 2021 and has twice a finalist in the Director of the Year category in the national Women in Finance Awards (2020 and 2021). She runs the first female-founded private lending business in Australia.