Tax starting to threaten property profitability in Perth market

THE property market in WA has historically been viewed as susceptible to the boom-bust cycle of the mining and resource sector.

However, WA’s tax profile is becoming a greater threat to WA’s ability to compete with other States.

Property Council of Australia WA Branch executive director Joe Lenzo admitted there were a number of different factors driving the major property markets in Australia and it was very difficult to compare them on one level.

“But when you start talking about competitiveness you need to talk about government regulation,” Mr Lenzo said.

“If you just look generally at the strength of the market you can ask what the economic drivers are and what’s driving demand.

“If the WA Government is not careful the tax regulation might make us less competitive.”

The national conveyance duty scales reveal that WA has the highest minimum and maximum rate payable on property purchases.

The minimum rate is set at 2 per cent which is at least 0.5 per cent higher than all the other states in Australia.

At the maximum end of the scale WA shares a top stamp duty rate of 5.5 per cent with Victoria and New South Wales.

However, WA’s threshold is lower than those two states, meaning its tax bite cuts in sooner.

Despite the State’s reliance on the resource sector, Government regulation plays an important role in attracting major investment in the state’s property sector.

“Our total economy is still reliant on the resource sector,” Mr Lenzo said.

“In general that’s the side of the market that helps the property market.

“We’ve found in WA that while there are changes in the resource sector they are not as violent as they once were.

“By association the property market is less susceptible

to major swings and that

means it is potentially a more attractive market for investors.

“We’re getting away from that boom-bust cycle.

“And that helps the property industry as well.”

Indeed, Perth is ranked second in terms of CBD office investment. According to PCA & Global Research and Consulting the total return on an office investment in the Perth CBD would have returned 10.57 per cent over the past five years.

Melbourne’s CBD office market returned 11.75 per cent over the same period.

In contrast to WA the property market in Sydney was far more exposed to the IT boom and has suffered far greater consequences due to the contraction of this market.

“In that sense we are a bit more stable because we do have a relatively stable mining, resource and agriculture sector,” Mr Lenzo said.

The Government’s move to alter the way stamp duty is applied to free property investments has been welcomed by the industry.

Colliers International research manager David Cresp said the stamp duty on property trusts had been a major disincentive for them to invest in WA.

“This was one of the large issues for the unlisted funds. Some of them said they would not invest in WA so it’s a major positive that it’s been fixed,” Mr Cresp said.

“This will improve our position.”

While increased activity in the resources sector has had a positive effect on the property market, it has not been reflected in rent growth.

CB Richard Ellis property analyst Andrew Woodley-Page said according to the national vacancy figures released in January, Perth and Hobart were the only two markets where the vacancy rate went down.

“If you look at the Property Council’s investment performance index across the capital city markets for the five years ending December 2001, Perth comes in second behind Melbourne,” Mr Woodley-Page said.

“We’ve also forecast the vacancy rate to contract further. As of July we think it will be around 8.9 to 9 per cent level.”

On the residential side of the market Real Estate Institute of Western Australia public affairs director Lino Iacomella said the different markets around the country tended to be effected by different factors and as a result sat at different points in the property cycle.

“The local economy is a primary issue followed by local population growth,” Mr Iacomella said.

“Perth has recorded steady growth.”

In partnership with interstate investment, population growth is a key indicator in relation to the growth of the residential market.

REIWA’s research suggests the local property market booms every five years and that the current boom is not as strong as the ones in 1988 or 1994.

Colliers International manager residential Nicholas Wells said that despite talk of a boom, only certain sectors of the residential market were thriving.

“We’ve gone through a market anomaly brought on by Government interference,” Mr Wells said.

“Subject to interest rates in the next 12 months I think we will see a gradual rise.”

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