30/10/2019 - 11:13

Stamp duty stimulus good, not great

30/10/2019 - 11:13

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The state government’s stimulus of the apartments sector has been welcomed by industry, but project eligibility and its likely effect on new home builds are being questioned.

Stamp duty stimulus good, not great
Apartment towers under construction are not eligible for a stamp duty rebate under the state government’s new stimulus scheme. Photo: Attila Csazar

The state government’s stimulus of the apartments sector has been welcomed by industry, but project eligibility and its likely effect on new home builds are being questioned.

Concern has emerged over the implementation of the state government’s stamp duty rebate scheme for off-the-plan apartment buyers, with detached homebuilders missing out on additional stimulus and prospective buyers of apartments in projects currently under construction ineligible to claim its benefits.

Last week, the state government announced a 75 per cent stamp duty rebate, capped at $50,000, for off-the-plan apartment buyers – a stimulus package designed to create jobs and deliver greater housing diversity throughout the metropolitan area.

The initiative was widely praised by industry groups upon its release, collectively hailed as a major breakthrough for developers struggling to launch new apartment projects in Perth’s patchy residential property market.

Of particular note to the development industry was the state government’s inclusion of its 7 per cent foreign buyer surcharge as eligible for rebates, a shift that created a value proposition for overseas investors considering Perth over other Australian cities.

However, Gemmill Homes managing director Dom Morolla said while the boost was a major positive for the sector, he believed the government had taken a biased approach to propping up property.

“I’m not saying that the stimulus is wrong, it is right, but it’s not brilliant,” Mr Morolla told Business News

“Ultimately, what I’m disappointed in is it has targeted one sector in our industry, and not a balanced approach to all of our industry.”

Mr Morolla said he would have preferred the stimulus to be evenly spread across apartments, new homes, and the established residential market.

While the state government provides stamp duty relief and $10,000 grants for first homebuyers who choose to build new homes, Mr Morolla said he was particularly concerned about the effect the stimulus would have on pulling prospective buyers in to inner-city apartment projects.

“Valuations in the outer suburbs are going to be driven lower, which means financing is going to become harder and harder for people to build new homes,” he said.

“We have to now consider what we do as a business, and whether to go into multi-res now, because that’s where the market is.”

Fabric Property director Rhys Kelly, who said he believed the stimulus package was widely beneficial and a positive for the industry, raised concerns over what projects would be eligible for the rebate.

According to application documents available on the Department of Finance website, apartment buyers would only be eligible to claim the stamp duty rebate if they agree to buy prior to construction starting.

“The state government should be congratulated for bringing forward the stimulus package, it’s a great step forward to helping everyone get apartments off the ground,” Mr Kelly told Business News.

“But there is an unintended consequence with the way it’s currently written and the criteria around how you can actually obtain the rebate.

“Traditionally, people will get 60 to 75 per cent of their property pre-sold to fund it, and then they’ll start construction. 

“There are a fair few developments under way in Perth which have managed to do that in a tough market. 

“Those apartments, while they might be 12 to 18 months away from being able to be titled, are no longer applicable.”

Mr Kelly said he had discussed the rebate with other developers with projects under construction, who were already fielding calls from prospective buyers asking for discounts to prices for apartments in buildings under construction.

“The impact of that will potentially be a reduction of available capital from the developers that haven’t made their forecast returns, therefore they can’t put that back into future projects,” he said.

Mr Kelly said he believed the issue of the rebate only applying to projects yet to start construction would be an easy fix, by amending the definition of ‘off-the-plan’ in the scheme to include projects that were under way, but had yet to issue titles.

“That would stimulate the market quickly, because people would get their pre-sales, get construction going, and then try to mop up the balance of their stock during construction, which is the normal case,” he said.

“Whereas I fear at the moment what we’ll have is all of the apartment projects currently under construction will become less competitive.”

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