It is now an industry consensus that stamp duty is the antithesis to a well-functioning property market and reliable funding source for State governments. Stamp duty is inefficient, creates volatile revenue and discourages the efficient use of scarce housing. Given Australian State governments rely on stamp duty as a funding source more than ever ($21 billion per annum in 2019), it is not simply enough to raise the problem without some viable solutions and replacements, such as:
Introduction of a broad-based flat land tax
Introduction of a broad-based progressive land tax
Broadening the base of and/or increasing GST
The adjustment period between stamp duty and its eventual replacement is a key consideration of any major reform. Stamp duty currently generates large one-off payments and which, if replaced would require medium term short-fall funding as well as a mechanism to shield those who had recently paid stamp duty from double-taxation. Ultimately a combination of the above may be a solution to the stamp duty problem widely regarded as contributing to the current lack of housing investment and affordability crisis.
Not-for-profit organisations (“NFPs”), such as universities, charities, member bodies and religious institutions, have over time established portfolios of generational assets that support their operations and ensure their long-term financial stability. However, as Australia looks to economic recovery from COVID-19, NFPs can expect significant disruption to traditional revenue streams, particularly philanthropy. In this context, NFPs may be forced to look at their assets for alternate sources of income or value accretion.
Many religious institutions will not consider the sale of assets while more broadly, groups are understandably cautious of divesting prime property for significant, but one off, cash injections. Of course, opportunities exist beyond simple divestment and even before the necessity borne out of COVID-19, Partner was seeing a number of NFPs reassess their historically low capacity for risk and consider ways to better leverage their assets.
Strategic planning approvals can add significant value and improve the marketability of a passive asset. Organisations open to contributing sites or surplus land parcels to joint venture developments can receive cash, tenancies and / or income producing strata assets in return. A partnership structure with developers or investors whereby an NFP can participate in development upside, whilst underwriting land value, is another alternative that requires caution and skill to manage; albeit can be a powerful value creator when executed well. This may also be in a form that allows the NFP to continue to own part or all of the land on completion. Whether out of necessity or opportunity, we expect this to become an increased focus in the short term as NFPs use the current downtime to undertake time intensive value-add processes and ensure they are well positioned to get ahead of the market recovery..
Built-to-Rent (BTR) is re-introducing a variety of residential product to the market, previously avoided by developers for various reasons.
Studios, small 1-bedroom apartments and dual keys have been difficult to finance over the previous decade in Australia. Banks have required large deposits for anything under 40sqm, which has created an artificial lack of stock in the major CBDs of Australia. Purpose Built Student Accommodation has filled some of the gap with a specific 15-25 sqm offering for tertiary students. However, opportunity exists in creating quality studio apartments that can be medium and long term let to a variety of tenants – students, young professionals living close to their work, and lifestyle focused singles/couples who prioritise location, intelligent design and building amenity.
Likewise, 3 bedroom units, which make up around 10% of a typical residential mix, currently produce outsized rental returns given their versatility to serve downsizers, share-houses and for young families priced out of the housing market.
Australia’s changing relationship with apartments and growth in BTR will see an increase in this offering, with 20-40% allocation possible in some markets, particularly for areas that are demographically weighted to families. Dual-keys, common to markets like Singapore, also allow BTR operators to hedge their bets and meet market demand as it arises.
The flexibility of BTR financing will allow residential product mix to go in a new and interesting direction for architects, town planners and developers, and we expect greater attention will need to be paid to demographics and versatility in initial planning.