Key Highlights

  • The Surcharge doubled from 2% to 4% in 2023.
  • The Council says global institutional Investment in Victoria fell 53% after the increase.
  • No. Interest rates, costs and broader capital-market conditions also affect investment.
  • The Council estimates a net cost of $77 million to remove the surcharge for institutions.

Victoria's decision to double its absentee owner surcharge has been followed by a 53% fall in global institutional investment, according to the Property Council of Australia. The claim, made in the Council's election platform ahead of the 28 November state election, puts a number on one of the industry's main complaints about Victoria's property taxes. It comes as both major parties compete on land tax relief, but neither has announced a plan to reverse the surcharge increase.

What the Property Council says

The Council's Victorian election platform, released in October, says global institutional investment in Victoria fell 53% after the absentee owner surcharge rose from 2% to 4% in 2023.

It also says Victoria's global institutional investment Per Capita is about 40% below that of New South Wales.

These are the Council's figures and its interpretation. The platform presents the fall as following the surcharge increase, but investment flows are also affected by interest rates, construction costs, global Capital markets and other state taxes. The Council's figures do not isolate the surcharge as the sole cause.

Because the comparison is per capita, it adjusts for Victoria's smaller population, so the gap is not simply a matter of size. Still, a gap of that scale between the two largest states gives the Council a clear talking point in the final weeks of the campaign.

The Council has also modelled what it would cost to remove the surcharge for institutional investors.

It estimates a gross Revenue cost of $295 million. It says this would be partly offset by additional stamp duty of $150 million, foreign purchaser duty of $39 million and land tax of $27 million, as new investment flows in.

The Council puts the net cost at $77 million. The rounded components listed sum to a net cost of about $79 million, a difference that likely reflects rounding.

Offset estimates of this kind depend heavily on the assumption that removing the surcharge would actually attract the extra investment. If investment did not respond as modelled, the net cost would be closer to the gross figure.

How the surcharge works

In broad terms, Victoria's absentee owner surcharge is an additional land tax charged on land owned by absentee owners, which generally includes foreign individuals and foreign-controlled companies and trusts. It is calculated on the taxable value of the land and is payable on top of general land tax. Some exemptions and concessions apply, and eligibility depends on the owner and how the land is used.

Institutional investors such as global pension funds and sovereign Wealth funds can fall within the surcharge rules depending on how their holdings are structured.

That matters for build-to-rent and other large-scale residential projects, which often rely on institutional capital. A higher annual holding charge reduces the expected return on a long-term rental investment.

Because institutions compare returns across countries and cities, a difference of a few percentage points in annual Holding Costs can influence where capital is allocated, even when other conditions are similar.

Hypothetical example: what doubling means

Hypothetical example: a foreign-backed fund holds a development site with a taxable land value of $5 million.

At a 2% surcharge rate, the annual surcharge would be $100,000 ($5 million × 2%). At 4%, it would be $200,000 ($5 million × 4%), before general land tax.

Over a 10-year holding period, the extra $100,000 a year adds up to $1 million in additional surcharge, assuming the land value stays the same.

On the per capita comparison, if institutional investment in NSW were $100 per person, a figure about 40% lower would put Victoria at about $60. And a 53% fall from $100 million would leave $47 million.

These figures are invented to illustrate scale. Actual liabilities depend on land values, exemptions, ownership structures and the precise legislation.

Where the parties stand

Neither major party has announced a policy to remove the surcharge for institutional investors, based on the commitments reported so far.

Premier Ben Carroll's Labor government has promised to lift the general land tax threshold from $50,000 by $25,000 a year from 2027-28, reaching $150,000 by 2030-31 and $300,000 by the end of 2033-34, at a cost of $230 million over five years.

The Coalition under Opposition Leader Jess Wilson would lift the threshold by $50,000 a year, reaching $300,000 by 2031-32. The Opposition says more than 250,000 Victorians would benefit.

Both plans are proposals, not law, and are aimed mainly at local landholders rather than offshore investors.

One Nation's Warren Pickering has said he would roll back the windfall gains tax and land taxes.

The Council's wider platform also calls for scrapping the windfall gains tax, which it says raised $15 million in 2024-25, and extending the off-the-plan stamp duty exemption for two years. It says property supplies 47% of Victoria's tax revenue.

Why institutional capital matters now

The market backdrop is weak. The Reserve Bank of Australia said in its November Statement on Monetary Policy that national prices were 4.7% below their recent peak in September, with the fall mainly due to monetary policy and federal budget tax changes.

The RBA expects dwelling investment to fall 2.8% in 2027 and 3.5% in the year to June 2028.

Nationally, dwelling approvals totalled 208,181 in the year to August, against the 240,000 a year needed for the Housing Accord target of 1.2 million homes by 2029.

The Australian Bureau of Statistics reported 3,694 dwelling approvals in Victoria in September. In that environment, the industry argues that institutional capital could help Fill the gap left by retreating individual investors and developers. That is an industry view rather than an official finding.

What to watch

Several dates will shape whether the surcharge debate moves.

- 28 November: the Victorian election, and whether any party responds to the Council's surcharge proposal. - 1 December: Cotality's home value index. - December: the federal MYEFO update. - 2027-28: the start of Labor's proposed land tax threshold increases.

Any change to the surcharge would require legislation after the election, so the Council's proposal remains a lobbying position for now. Its estimates should be read as industry modelling until tested by government costings or independent analysis.