National Australia Bank (NAB) will fund <a href="https://www.apartments.com.au/new-apartments/palmera-residences-gold-coast-18-garfield-terrace-surfers-paradise-qld-4217">Palmera</a>, a $1 billion, 52-level luxury residential tower being developed by Central Equity in one of the Gold Coast’s most tightly held coastal locations at Northcliffe.

The project, launched recently by <a href="https://www.apartments.com.au/developers/central-equity">Central Equity</a>, one of Victoria’s largest private residential developers, comes at a time when construction funding for large residential developments has become increasingly competitive as lenders tighten exposure to the sector.

Multiplex has been appointed the builder, and construction is now underway.

[smartcode_project:default project_id=108274 project_image_fid=365784]

Since its first project, Central Equity has delivered more than 85 residential developments with a combined end value exceeding $8 billion.

Palmera reflects Central Equity’s growing focus on the Gold Coast luxury apartment market and continues a relationship between Central Equity and NAB that dates back to the late 1980s, when the bank funded one of Melbourne’s earliest inner-city residential towers at a time when high-rise apartment living in the CBD was largely unproven.

“NAB’s funding of Central Equity’s $36 million CBD development in the late 1980’s to the financing of the billion-dollar tower today highlights the long-term relationship between the two organisations in delivering major residential projects” said Central Equity Founder and Chairman Eddie Kutner.

He said NAB’s early support was instrumental in helping establish the company’s development model.

“When we commenced our first residential tower in the late 1980s the concept of funding off-the-plan apartments was still largely untested in Australia,” Kutner said.

“NAB recognised the opportunity early and supported the project when others were uncertain. That relationship has now continued for more than 37 years across many developments.”

[smartcode_project:default project_id=108274 project_image_fid=365771]

Central Equity was established in 1987 when Melbourne’s CBD and Southbank precinct were still dominated by warehouses and commercial buildings. Fewer than 100 residents lived in Southbank at the time, and large-scale residential development in the inner city was not widely considered.

Recognising changing demographics and lifestyle preferences, the company began developing high-rise residential projects designed to bring permanent residents into the city centre.

Central Equity has provided accommodation for approximately 40,000 residents across Melbourne’s CBD and Southbank, while also incorporating supporting infrastructure including essential lifestyle facilities like retail spaces, childcare facilities and neighbourhood activity centres.

Central Equity has spent many years assembling the Palmera development site on the corner of Garfield Terrace and Frederick Street in Northcliffe, creating a supersite of around 3,300 sqm.

The developer said the Palmera apartment tower reflects its long-term view of the Gold Coast as a growing and increasingly diversified economy.

[smartcode_project:default project_id=108274 project_image_fid=365768]

Supported by infrastructure including the light rail network, major road upgrades expanded education, hospital and medical facilities and continued expansion at the Gold Coast Airport with more internation and domestic flights.

Positioned in the tightly held Northcliffe precinct, the 52-level tower will deliver 347 apartments, targeting buyers seeking a high-end coastal lifestyle, from downsizers to interstate investors.

Designed by Marchese Partners with interiors by DBI, Palmera has been conceived as a next-generation residential offering, featuring a collection of oversized apartments, with premium three-bedroom residences offering sweeping northern views stretching from Surfers Paradise through to Burleigh Heads.

[smartcode_project_cta:default project_id=108274]

Joel Robinson

NAB funds $1 billion Surfers Paradise apartment development, Palmera

Two years after completing one of the newest developments in North Sydney, developer <a href="https://www.apartments.com.au/developers/aqualand-australia">Aqualand</a> is turning its attention to the rapidly evolving St Leonards apartment market.

The developer, which completed AURA by Aqualand on North Sydney's Walker Street, has lodged plans for a 5,918 sqm site at <a href="https://www.apartments.com.au/new-apartments/33-37-herbert-street-st-leonards-nsw-2065">33-37 Herbert Street, St Leonards,</a> seeking approval for a pair of residential towers rising above a shared podium opposite Royal North Shore Hospital.

The proposal forms part of the broader transformation underway across the St Leonards-Crows Nest precinct, where former industrial and commercial sites are increasingly being redeveloped into high-density mixed-use projects tied to major transport infrastructure.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="2cc428cf-fe70-4cac-9cd5-264ad53af62c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.56%E2%80%AFAM.png?VersionId=otKSnHtbjAvAddOnovyXQMgcAwE6DMe1" />

According to the planning documents, the site sits “within the St Leonards–Crows Nest Strategic Centre, identified by the NSW Government as a key area for accommodating future jobs and housing across Sydney.”

The proposal has been designed by fjcstudio, formerly FJMT Studio, and is being progressed through the State Significant Development pathway due to its scale and affordable housing provision.

The scheme would comprise 413 apartments, including 46 affordable housing units, alongside retail and commercial uses fronting Herbert Street. The project would also include communal open space, landscaping, a swimming pool, gymnasium, children’s play areas and podium-level resident amenities.

Planning documents show the development would consist of a part-13, part-39 storey tower form positioned above a four-storey podium.

“The development comprises a unified podium that activates the street interface, and two setback towers to accommodate new housing supply while maintaining an appropriate human scale at ground level,” fjcstudio noted in its Design Report.

The northern and southern towers have been shaped to respond to the surrounding skyline while also limiting overshadowing impacts to nearby public open space, particularly Talus Reserve.

The design report said the differing tower heights were intended to “contribute to a varied skyline while responding to the surrounding built form context and solar access considerations.”

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="36da62dc-ff9e-41f2-a7e3-7be38373751c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.45%E2%80%AFAM_0.png?VersionId=Mo6Rp2r.XRLTzIfg_PEEpw8NepDH8UBs" />

The site sits directly opposite Royal North Shore Hospital and within walking distance of both St Leonards Station and the new Crows Nest Metro station.

While the site itself sits just outside the formal Crows Nest Transport Oriented Development boundary, the planning documents repeatedly reference its alignment with the broader TOD objectives reshaping the Lower North Shore.

“The site is located adjacent to St Leonards Station and in close proximity to Crows Nest Metro which is within the Crows Nest Transit Orientated Development Accelerated Precinct which has been identified by the NSW Government to support housing delivery,” the Design Verification Statement noted.

According to fjcstudio, the project has been designed to respond to the broader transition occurring across St Leonards, where increasing residential density is being concentrated around transport infrastructure and employment hubs.

“The broader precinct is undergoing significant change, with a mix of existing mid-rise buildings and newer high-density developments,” the report stated.

“Recent and approved projects indicate a consistent shift toward taller built form, typically organised as tower-and-podium typologies with more active ground levels.”

The proposal includes close to 6,000 sqm of retail and commercial space across the ground floor and podium levels, designed to create a more activated street edge along Herbert Street.

Aqualand’s plans would also introduce a landscaped podium shared between the two towers, with communal open space in the form of a podium rooftop designed to support resident interaction and improve urban greening outcomes. The scheme would also introduce pocket parks at the northern and southern ends of the site, including a landscaped area at the corner of Herbert and Ella streets designed to improve pedestrian amenity and soften the streetscape.

&nbsp;

The proposal is being progressed through the NSW Government’s Housing Delivery Authority pathway, which was introduced to accelerate housing supply across the state. The application was declared State Significant Development in April 2025 following an expression of interest process.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="faf6d97d-2671-454f-b85a-fe1c6a7be608" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.49%E2%80%AFAM.png?VersionId=diVd28OBVr5.YV.7prrOz.uAanwwwm7a" />

St Leonards has been particularly active with new developments in recent weeks. Developer SP Setia’s <a href="https://www.apartments.com.au/news/nsw/first-look-sp-setia-targets-st-leonards-skyline-with-40-storey-tod-tower">plans for a new 42-storey tower</a> recently went on exhibition through the same pathway, while <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">Stockland’s 52-storey tower proposal</a> was also recently unveiled.

Aside from the St Leonards project, which is expected to take around nine months to move through the approvals process ahead of a potential 2027 launch, Aqualand is also preparing to launch Boronia, a new apartment project in Roseville comprising around 111 apartments on Larkin Street.

The developer also has approvals in place for the next stage of the Barangaroo precinct, which will feature new residential, retail, hospitality and community uses, alongside a new metro entry across the five-hectare site.

More than 50 new retail destinations are planned for Central Barangaroo, alongside a 270-metre-long boulevard connecting Hickson Park to Nawi Cove. Together with Harbour Park, more than 50 per cent of the precinct will comprise public open space and parkland.

First look: Aqualand joins St Leonards apartment party

<section data-scroll-anchor="false" data-testid="conversation-turn-5" data-turn="user" data-turn-id="e65dbe94-e3b6-47f7-b62a-9cbb30c9bf79" data-turn-id-container="e65dbe94-e3b6-47f7-b62a-9cbb30c9bf79" dir="auto">Time &amp; Place’s plans to transform the former David Jones factory building in Surry Hills into a mixed-use residential precinct have gone on exhibition through the NSW Government’s In-fill Affordable Housing pathway.</section>

<section data-scroll-anchor="false" data-testid="conversation-turn-6" data-turn="assistant" data-turn-id="request-WEB:f4d533b7-64a5-413d-86fd-5c99649c2b73-2" data-turn-id-container="request-WEB:f4d533b7-64a5-413d-86fd-5c99649c2b73-2" dir="auto">
The Marlborough House proposal, lodged for the <a href="https://www.apartments.com.au/new-apartments/marlborough-house-47-97-marlborough-street-surry-hills-nsw-2010">47-97 Marlborough Street</a> site, would see the adaptive reuse of the heritage-listed warehouse building alongside the construction of new residential additions and a separate apartment building on the northern portion of the site.

The proposal seeks approval for 172 apartments across three buildings, including 15 per cent affordable housing managed by a community housing provider for at least 15 years from occupation.

<img alt="Marlborough" data-entity-type="file" data-entity-uuid="5d1d3c2a-bf13-47d6-a335-7c01102cdee1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.36%E2%80%AFAM.png?VersionId=cjMYrbR.BLUlWH4dar0RVDDo0bG.u2YT" />

Interior view from the Northern Building Penthouse overlooking the park

&nbsp;

The redevelopment is planned for the prominent 3,413 sqm site bounded by Marlborough Street, Goodlet Street and Lansdowne Street, directly opposite Eddie Ward Park and around 200 metres from the Surry Hills light rail stop.

Time &amp; Place acquired the former David Jones building in 2024, marking the first time the property had changed hands in around 50 years.

Designed by Wardle, the proposal centres around the adaptive reuse of the former David Jones factory, originally constructed between 1913 and 1935 in the Inter-War Chicagoesque architectural style.

Wardle noted in its Architectural Design Report that the building “occupies a significant place in the industrial and cultural history of Surry Hills” and at its peak was “the largest department store manufacturing facility in Australia, employing over 800 people and fuelling the growth of Sydney’s fashion and retail industries.”

The practice said the project positions itself “not as an isolated intervention, but as a contributor to the civic, social, and architectural grain of the precinct.”

The proposal would deliver 75 apartments within the retained southern heritage building, 59 apartments within the central addition, and a further 38 apartments within the new northern building fronting Lansdowne Street.

Planning documents show the scheme would comprise a mix of heritage apartments, new-build apartments, townhouses and penthouses.

<img alt="Marlborough" data-entity-type="file" data-entity-uuid="57758518-40a3-4b83-958c-d06e96a2cffa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.42%E2%80%AFAM.png?VersionId=VerlX9ST5xgBi8.1_YRsqdWTJeT6ygjs" />Interior View of the Heritage Building Apartment

The development would also include a ground-floor retail tenancy on the corner of Marlborough and Lansdowne streets, rooftop communal open space, a landscaped pedestrian link along the western edge of the site, and basement parking accessed from Lansdowne Street via a car stacker system.

&nbsp;

The scheme emerged from a competitive design process run by Urbis, with Wardle ultimately selected as the winning architect ahead of FJC Studio, TZG, Architectus and Wilkinson Eyre.

The Design Integrity Panel later described several aspects of the Wardle scheme as fundamental to the project, including “the stepped character of the new addition to the north of the site”, the landscaped western pedestrian link, and the “garden arrival” experience separating the original Marlborough House from the heritage addition.

Wardle’s design heavily references the site’s industrial and heritage history, while also responding to the surrounding Surry Hills streetscape.

The Architectural Design Report describes Surry Hills as “a finely grained neighbourhood with beautiful and expressive brickworks throughout the suburb,” with the proposal introducing a material palette intended to sit comfortably alongside the existing warehouse fabric and neighbouring terraces.

The report also outlines the project’s relationship with Eddie Ward Park and the broader landscape context of the area.

“Marlborough House occupies a site of deep cultural memory and the neighbouring Eddie Ward Park is of local ecological significance, where natural systems, topography, and stories have long shaped human experience,” Wardle noted in the report.

The architects said the proposal sought to “rebind built form to Country” through landscape, materiality and the adaptive reuse of the heritage structure.

<img alt="Marlborough House" data-entity-type="file" data-entity-uuid="9ae3f2f9-c85f-477a-a6f8-b43f6cb97c41" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.53%E2%80%AFAM.png?VersionId=B.qUCLqRvJOR.n9CvYcTpaknIX9LuqKZ" />

The project is also being progressed under the NSW Government’s in-fill affordable housing provisions, allowing developments that include affordable housing to access additional height and floor space incentives.

Under the plans, 2,593 sqm of the project’s floor space would be dedicated to affordable housing, slightly exceeding the required 15 per cent threshold.

In its Design Excellence Strategy, Urbis said the project aimed to “sensitively adapt and enhance the heritage-listed building on site through alterations and additions that preserve its historical significance” while delivering “high-quality market and infill affordable housing development in Surry Hills.”

Time &amp; Place has been one of the most active developers nationally in the last 12 to 24 months. Late last year they completed&nbsp;The Queensbridge in&nbsp;<a href="https://www.apartments.com.au/developments/southbank-vic-3006">Southbank</a>, a mixed-use tower with 353 apartments and a hotel. They are currently selling Park Modern, 246 apartments near the famous Botanic Gardens in&nbsp;<a href="https://www.apartments.com.au/developments/south-melbourne-vic-3205">South Melbourne</a>, and have future projects, <a href="https://www.apartments.com.au/new-apartments/the-wilmot-173-burke-road-28-hope-street-glen-iris-vic-3146">The Wilmot</a>&nbsp;in&nbsp;<a href="https://www.apartments.com.au/new-apartments/glen-iris-vic-3146">Glen Iris</a>, the redevelopment of the Northcote Plaza, and another tower in South Melbourne.

The developer broke into Sydney just a few years ago with Two Tides in Manly. They have another project nearby, which is at the ultra-luxury end of the market on&nbsp;<a href="https://www.apartments.com.au/buildings/shoreline-manly-beach-89-90-north-steyne-manly">North Steyne</a>, fronting the beach.

It is also continuing to work through the <a href="https://www.apartments.com.au/news/nsw/first-look-time-place-settles-on-design-for-the-chimes-potts-point-redevelopment">redevelopment of The Chimes building</a> on Macleay Street in&nbsp;<a href="https://www.apartments.com.au/developments/potts-point-nsw-2011">Potts Point</a>, as well as a project on <a href="https://www.apartments.com.au/news/nsw/time-place-to-take-on-mosman-apartment-market">Mosman's Redan Street</a>.
</section>

First look: Time & Place unveils Marlborough House redevelopment designs for former David Jones warehouse in Surry Hills

The residential transformation of St Kilda Road is set to continue into with more new apartment plans for the sought-after boulevard.

Wing Tai Asia has lodged plans for a major residential tower at 464-466 St Kilda Road, replacing the former VACC House with an 18-storey mixed-use development designed around a retained heritage podium and a sculpted contemporary tower.

The proposal, prepared under Victoria’s Significant Residential Development with Affordable Housing pathway, would deliver 325 apartments and ground-floor retail across the prominent 4,653 sqm boulevard site in Melbourne’s St Kilda Road North Precinct.

The project centres on the adaptive reuse of the site’s heritage-listed VACC Building, an eight-storey office designed by Bernard Evans that has occupied the address for decades. Planning documents state the development would involve “carefully dismantling and conserving off-site the original metal fabric of the podium visible from St Kilda Road,” before reinstating it as the defining frontage of the new scheme.

Above the restored podium, Wing Tai is proposing a curvilinear residential tower. The scheme includes 172 one-bedroom apartments, 63 two-bedroom apartments, 66 three-bedroom apartments, and 24 four-bedroom apartments, alongside two ground-floor food and beverage tenancies fronting St Kilda Road.

The tower has been designed with substantial articulation and variable setbacks to minimise perceived bulk and maintain view corridors along the boulevard. Urbis, which prepared the planning report, said the design “has been significantly articulated through a curvilinear design” with “an interplay with materials, façade expression and depth” to create visual separation and visual interest.

The proposal also includes 254 basement car spaces, landscaped pedestrian links connecting St Kilda Road and Queens Lane, and a biophilic landscape strategy featuring canopy trees, raised planters, cascading greenery and a glass oculus pool overlooking the eastern frontage.

Planning documents confirm the $270.1 million development will contribute 3 per cent of project costs to the Social Housing Growth Fund as part of the application process.

Wing Tai acquired the St Kilda Road property in 2018 alongside Abacus Property Group for $95.38 million, before later consolidating ownership of the site. The property previously served as the Victorian Automobile Chamber of Commerce headquarters for around 60 years.

The transformation of the St Kilda Rd boulevard is already beginning to materialise, with a number of high-profile projects recently completed, launched, or approaching launch as developers continue to back the long-term appeal of the precinct.

Among the most notable recent completions is Louise by Samuel Property Group, just off the strip on Queens Lane, the same pocket Hirsch &amp; Faigen recently launched The Queensbury. Mirvac is too on the same street with The Albertine, which is approaching completion.

Dexus recently secured approval for its slice of St Kilda Road, while Gurner also has approved plans for the precinct.

Wing Tai unveils 325-apartment St Kilda Road tower on former VACC House site

Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<html><body>
The past few weeks have seen banks tighten up lending conditions for property investors – either charging higher interest rates or imposing lower loan to valuation ratios or both.
This is in response to increasing pressure from the banking regulator APRA (ie the Australian Prudential Regulation Authority) demanding that the 10% cap on property investor lending growth that it announced last December be adhered to. 
Those who have been around for a while might wonder what is going on. Isn’t this what used to happen in the dim dark days before the enlightenment of financial regulation in the 1980s. The answer is yes and the term “macro prudential regulation” – in reference to using prudential controls on lending to influence the economic cycle - is just a fancy term for what went on in the past. 
So why has it made a comeback? And will it work?
The focus on varying prudential controls to achieve macro-economic outcomes was quite common up until the early 1980s but went the way of the dodo when it was concluded that it was only leading to distortions in the financial system, as people found a way around them.
So while financial system regulators, like APRA, continued to ensure that prudential standards were met, from the mid 1980s varying interest rates to control the housing and economic cycle became the norm. And this worked reasonably well.
The last major boom in Australian property prices ended around 2004. This was a cracker and saw average home prices around Australia rise an average of nearly 15% per annum over the five years to the end of 2003; a massive surge in housing related credit with property lending growing 21% and property investor lending growing 30% in 2003; this in part was fuelled by property spruikers running property investment seminars on a grand scale; and there was little doubt that house price gains were being extrapolated off into the future in investors’ minds and that this in turn was driving more investment.
<img src="/images/2015/05/26/oliver1.jpg" alt="">
(Source: CoreLogic RP Data, AMP Capital)
The surge into 2003 took the property price to household income ratio from around three times to around five to six times and saw real property prices go from well below trend to well above.
As a result concern about a property bubble and poor housing affordability came to the fore. It was “cooled down”, not by prudential controls but by a combination of “jawboning” by then RBA Governor Ian Macfarlane warning against the dangers of property speculation and then the start of an interest rate tightening cycle as the economy improved. The collapse of a high profile property spruiker’s business and poor home affordability also helped. 
But while the prudential regulator made sure that lending standards were being maintained, prudential controls were not varied to achieve macro-economic outcomes.
This time is a bit different for several reasons. 
<ul>
<li>First, property price gains are nowhere near as strong – over the last five years average capital city home prices have risen at just 3.5% pa. For Sydney it’s just 6.5% pa. </li>
<li>Second, the gains are not broad based – while Sydney home prices are up 14.5% over the year to April, for the other capital cities the gain is just 1.7%. </li>
<li>Third, credit growth is running at a fraction of what was seen in 2003 with total housing related credit up 7.3% over the year to March and investor credit up 10.4%.</li>
<li>Finally, unlike in 2003 and 2004 the economy is much weaker. Back then growth had been picking up after a soft patch and was being helped by a super low $A, households happy to take on more debt – remember the line about households having an ATM in their living room - and the start of the mining boom. Now the economy has been sub-par for several years as the mining boom is unwinding. In fact, the rest of the economy needs very low interest rates.</li>
</ul>
But of course its never that simple as the RBA and regulators are aware that expressed relative to household income both home prices and household debt levels are already very high – having never really unwound from the surge into 2003-04. And so they are fearful of letting low interest rates drive them much higher given the risk to the financial system and economy should they then fall sharply.
So to balance all these cross currents there has been a return to using macro prudential controls in order to allow the low interest rates that the economy as a whole needs but at the same time to keep a lid on the property market.
Will it work? Only time will tell on this one. APRA is pretty adamant that it wants to see growth in property investment lending slow into the second half of the year and if lenders don’t tow the line then tougher action is likely. So my feeling is that it probably will work and we should expect to see a slowing in the availability of credit for property investors and as a result some slowing in home price growth in Sydney (maybe back to around 8% pa) and to a lesser degree Melbourne over the next year. However, a downturn in property prices will likely have to await the start of interest rate hikes maybe late next year or in 2017.
However, there are several risks around this. APRA’s 10% “cap” on property investor lending growth could prove too lax and on the other side its hard to know when such regulatory tightening has gone too far in which case the property market could slow more than expected. There is also a danger that it hits cities that are weak anyway (basically all the capital cities except Sydney and Melbourne). And longer term, lenders and borrowers may try to find a way around such prudential controls. 
But hopefully by then the economy will have returned to normal and we can go back to relying on interest rates to control the property cycle.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds. 
</body></html>

soliver-smf6LQXgW9

Back to the past to control the property cycle: Shane Oliver

<html><body>
The Australian Bureau of Statistics (ABS) released data mid-May which revealed that 48.7% of state and local government taxation revenue over the 2013-14 financial year came from property related taxes.
The data showed that over the year, state and local governments collected a record $40.485 billion in taxes from property related sources. In comparison, they collected $21.341 billion in taxes from employers, $11.208 billion in taxes from the provision of goods and services and $10.024 billion in taxes on the use of goods and performance of activities.
As this shows, at a state and local government level property taxes are the largest source of revenue. Although property accounted for 48.7% of total tax revenue over the year, it has previously accounted for as much as 50.6% of all revenue in 2003-04.
<img class="aligncenter size-full wp-image-4780" src="https://blog.corelogic.com.au/wp-content/uploads/2015/05/Chart-13.jpg" alt="Chart 1" width="500" height="183">
The total value of property related taxes increased by 12.6% over the most recent financial year. This represents the greatest year-on-year increase in property related tax revenue since it rose 14.3% over the 2009-10 financial year. In comparison, taxes on employer’s payroll and labour force rose by 2.8%, taxes on the provision of goods and services rose 1.2% and taxes on the use of goods and performance of activities rose 3.5%. Overall, state and local government tax revenue increased by 7.2% over the year.
With home values nationally beginning to rise in June 2012, it is clear that state and local governments are a major benefactor of the strong housing market conditions. With higher home values, taxes such as land tax, municipal rates and stamp duty on conveyances all increase. Conversely when housing market conditions shift and value growth slows or values falls the largest source of tax revenue (property) is adversely affected.
<img class="aligncenter size-full wp-image-4781" src="https://blog.corelogic.com.au/wp-content/uploads/2015/05/Chart-22.jpg" alt="Chart 2" width="500" height="513">
Of the $40.485 billion in property related tax revenue collected in 2013-14, 40% came from municipal rates and 36% came from stamp duties on conveyances. Land tax was the only other sizeable contributor to property related tax accounting for 17% of revenue. Over the year the most significant increase in property related taxes came from stamp duty, up by 24.4%. The amount of tax revenue collected from municipal rates increased by 5.3%, and land taxes increased by 2.8%.
Property related tax revenue is only collected by those who own properties. Ultimately every property is owned by someone, some as an owner occupier and some as an investor. The taxes levied against property are typically only payable by the owner of the property. Given this, those who choose to rent rather than own property pay no tax on property. Not to mention the fact that the cost of renting is typically much lower than the cost of owning.
State and local governments have clearly experienced a significant revenue boost via the improvement in the residential housing market over the year. Stamp duty in particular has seen a significant rise. With sales volumes and property values rising there have been more sales to receive stamp duty from and at a higher price which also increases the stamp duty collected.
Of course, the issue with stamp duty is that it is a tax only collected across those properties which sell. From a residential perspective this is just 5% to 7% of the total housing stock over a given year. Stamp duty also acts as a disincentive for home owners to transact property on a more regular basis because it is a tax paid on a new purchase.
<img class="aligncenter size-full wp-image-4782" src="https://blog.corelogic.com.au/wp-content/uploads/2015/05/Chart-32.jpg" alt="Chart 3" width="500" height="182">
Looking more closely at stamp duty over time you can see just how inefficient the tax is, being heavily reliant on the performance of the housing market. The 2013-14 financial year was a bumper one for stamp duty revenue thanks to strong growth in home values and an increase in sales activity. As we’ve seen in the past, these good times won’t last forever and eventually state and local governments will feel the impact of a downturn in tax revenue as the housing market cools.
I have previously argued that the removal of stamp duties would encourage greater mobility of residents and provide less of a barrier to those home owners looking to upgrade or downsize. Of course state and local governments would lose 36% of their property related tax revenue and 17% of their total taxation revenue. 
Replacing stamp duty with a blanket land tax, another tax, would likely be unpopular and you’d have to consider how equitable that would be particularly for those who have recently paid stamp duty (if a blanket land tax regime were to be introduced it would likely be accomanpied by compensation or discounts to those who recently purchased under the stamp duty regime). 
To put a blanket land tax into perspective to cover the $15.976 billion in stamp duty revenue over the 2013-14 financial year, each residential dwelling would have to pay $1,705.60 based on the ABS estimate of 9,366,800 residential dwellings as at June 2014. 
Keep in mind that stamp duty isn’t just payable on residential property transactions and more revenue is available from commercial and industrial properties or the cost per home could be reduced.
<img class="aligncenter size-full wp-image-4783" src="https://blog.corelogic.com.au/wp-content/uploads/2015/05/Chart-42.jpg" alt="Chart 4" width="500" height="149">
Over the year, stamp duty revenue was higher in each state and territory except for the Australian Capital Territory (-1.7%). Across the other states the rise in stamp duty revenues were recorded at: 32.3% in New South Wales, 27.9% in Victoria, 27.3% in Queensland, 2.1% in South Australia, 9.5% in Western Australia, 10.8% in Tasmania and 12.7% in the Northern Territory.  
According to the CoreLogic RP Data Home Value Index, home values rose across each capital city except for Darwin over the year with the largest rises in Sydney, Melbourne and Brisbane. Clearly home value rises across the capital city markets have had a positive effect on stamp duty revenues.
The data highlighted shows that property related taxes are the most important source of revenue for state and local governments, accounting for 48.7% of their total taxation revenue. The issue of course is that these levels of government are looking to constantly grow their revenues. The two main sources of property related revenue are rates and stamp duty. Rates can be grown by encouraging a greater number of ratepayers into a region (create more housing) and stamp duty can only be lifted by changing the rates or encouraging higher prices and/or more sales. 
In certain regions increasing the supply of ratepayers is not possible so it is clear that stamp duty is an extremely important source of revenue.  With capital city home values continuing to rise throughout the 2014-15 financial year, we anticipate that stamp duty will be higher once again. The question is whether governments can continue to rely on property being a one-way bet?
The ACT has already announced a phase out of stamp duty over the next two decades, and there is also discussion around a move away from stamp duty in South Australia.  The major benefit to State governments under a broad land tax arrangement as opposed to stamp duty would be the consistency of revenue flows rather than the lumpy market driven revenue which is evident under the stamp duty system.
Cameron Kusher is CoreLogic RP Data’s senior research analyst. You can read his posts here.
</body></html>

ckusher-ujnxiKuFQs

Property related tax revenue surpasses $40 billion: Cameron Kusher

<html><body>
Small businesses with a turnover of less than $2m can now claim an immediate tax deduction when purchasing plant equipment valued under $20,000.
This new tax break will deliver an early Xmas present to fit-out contractors who specialise in restaurant and small office refurbishments.
I was surprised by the quantum of the tax break.
I think $20,000 as an immediate tax deduction for individual items is a huge amount and an incredible incentive to bring that fit-out forward.
Fit-out contractors now believe in Santa Claus and he’s taken the form of Joe Hockey.
We recently refurbished our office for a cost of $202,000 and were able to claim $35,000 in depreciation in the first year. If we’d carried out the same fit-out today our first year depreciation would’ve been over $123,000.
That’s a huge difference.
Quantity Surveyors are experts in breaking down the overall construction cost into individual items and now has never been a more appropriate time to do this.
There are four main points to consider:
<ol>
<li>Small businesses should ensure a detailed report of any fit-out costs be carried out.</li>
<li>When acquiring any new asset, small businesses should try to keep the costs below $20,000.</li>
<li>This generous bonus has an expiry date of June 30, 2017.</li>
<li>Assets costing over $20,000 can still be depreciated but not claimed as an outright deduction.</li>
</ol>
Some examples of what may qualify for an immediate tax deduction include carpet, desks, blinds, work stations and a lighting upgrade.
Now has never been a better time to upgrade that office or refurbish your restaurant.
TYRON HYDE is director of <a href="https://www.washingtonbrown.com.au/" target="_blank">Washington Brown Quantity Surveyors</a>.
His book <a href="https://www.claim-it.com.au/?utm_source=wbsite&amp;utm_medium=image&amp;utm_campaign=homepagebanner" target="_blank">CLAIM IT!</a> helps property investors maximise their tax benefits through smart deprecation.
</body></html>

tyronhyde-GVUTYT8ZT3

Christmas for contractors as Hockey delivers: Tyron Hyde

<html><body>
The South Australian treasurer Tom Koutsantonis has declined to rule “in or out” introducing a foreign buyers tax on property sales leading up to next month’s state budget.
The local website InDaily noted Koutsantonis said there was no indication the Weatherill Government would introduce such a measure “just because something’s happened in Victoria”.
“In terms of any decision we’re going to make, I’m not pre-empting anything in our budget leading up to it,” he said.
“If I start ruling things in or out, the moment I say ‘yes’ or ‘no’ to a foreign investor tax, people will say ‘what about abolishing stamp duty?’ or ‘what about payroll tax?’”
But the Real Estate Institute of SA wants an early assurance with CEO Greg Troughton telling InDaily any disincentive to foreign investment is “the last thing South Australia needs”.
The Property Council of Australia says there is a need for urgent, fundamental tax reform in South Australia.
Property in South Australia is heavily taxed with 42% of state revenues coming from property taxes.
<div class="page" title="Page 4">
<div class="layoutArea">
<div class="column">
<img src="/images/2015/05/08/chart1.jpg" alt="" width="627" height="405">
</div>
</div>
<div class="layoutArea">
<div class="column">
'Along with contributing $1.8bn in property specific taxes to State Government revenues, the property sector also pays a generous share of other taxes through payroll taxes, insurance taxes, goods and services tax and Council rates," the PCA of SA said.
</div>
</div>
</div>
</body></html>

jchancellor-FAypfDUnLy

REISA doesn't want South Australia to follow Victoria with foreign property buyers' tax

<html><body>
Foreign property investors being used as 'cash cows' by the Victorian government could potentially impact foreign investment in the state, according to property, finance and immigration firm Ausin Group (Ausin). 
The comments came after the Victorian government announced it is set to impose a 3% levy on purchases by foreign citizens who are not permanent residents along with a 0.5% land tax surcharge to absentee property owners who are not citizens or permanent residents.
Joseph Zaja, the Ausin Group managing director believes the Victorian property industry is currently sustaining the state economy with stamp duty generating the highest tax revenue in the state. 
"Overseas investors are an easy revenue raising target for the government," Mr Zaja said. 
“Foreign property investors are the lifeblood for several major property projects across Victoria.
"Without this cash injection many would not be developed and thousands of jobs would be lost. The State government is sending the message to foreign investors that it is not open for business by introducing new property taxes.
“Overseas buyers are about to be slugged with two new property taxes from both Federal and State governments – a double whammy."
 The Federal government is currently considering introducing a $5,000 levy as part of its Foreign Investment Review Board changes for overseas buyers purchasing in Australia. 
Mr Zaja stressed Australia's enviable reputation as a place that welcomes foreign investment was key to future economic prosperity. 
“The Victorian government’s announcement to slug foreign property purchasers with a new tax is short sighted.
"It is hoped the other states don’t follow their lead.
"We expect our foreign purchasers to start looking for more investment opportunities in others states,” Mr Zaja said.
In the last financial year over 60 per cent of Ausin’s property sales totally almost 2000 were to foreigners buying property in Victoria.  
Over half of those sales were to investors seeking to move here in the near future.
Ausin is one of Australia’s largest privately owned companies providing property, immigration and financial services advice to both Australian and Asia Pacific markets. The company sells properties for Australian Stock Exchange (ASX) listed companies and private property developers in Australia and New Zealand.
It employs over 350 staff across its offices.
</body></html>

Victorian government milking foreign 'cash cow'

<html><body>
GUEST OBSERVATION
It is budget time again and, like on many previous occasions, the voices seeking easy publicity are calling louder and louder for the abolition of negative gearing. Housing affordability is a hot topic in an environment where property prices are rising, in some places quite significantly, so the media is happily running with this agenda without questioning the basis of various claims.
But how can you have an honest debate on the issues involved if none of those commenting against negative gearing demonstrate enough knowledge on the topic they are talking about?
Dispelling myths about negative gearing is like trying to convince a 3 year old that "spinach is good for you"… It requires some maturity to comprehend the topic of the discussion before one is able to participate without any prejudice.
It may appear as a harsh and provocative assessment of those criticising negative gearing and Australia’s current tax arrangements - especially since the anti-negative gearing voices include prominent economists, managers of investment funds, various social think-tank organisation and media personalities. But if you scrutinise what they are saying it is very obvious they are just repeating overheard phrases without any understanding of the meaning of what these words really mean. Just like the aforementioned 3 year olds…
Just to illustrate, the prevailing theme is that negative gearing is a "cost to taxpayers"… Really? How about taking a class in basic accounting to understand the principles of cash flow before making any such statements publicly? Then the commentator would understand the negative gearing is all about cash flow and not about profit and therefore, that it is neutral from an overall tax perspective. (I explained the mechanics in my earlier article if you care to read - <a href="/news/negative-gearing-the-three-facts-that-will-challenge-your-assumptions">Negative gearing: The three facts that will challenge your assumptions</a>).
Then there are ideas about changing the provisions to allow negative gearing on new properties only, to increase new build. Yeah, right, great idea. Let’s keep all those people unable to buy isolated in renter ghettos, or relegate them to city fringes, and keep the suburbs pristine and free from temporary drifters. Let’s repeat those social housing experiments from 1960’s and 1970’s (this time round with private money) which legacy is still haunting parts of our capital cities half a century later.
Of course I am exaggerating the possible consequences but only to highlight that those who call for such arrangements did not think through the full consequence of what may happen. Ask yourself, where is the greatest demand for rental accommodation? Of course, in city centres and along major transport routes. This is where investors are providing the bulk of rental stock - because this is where the demand is. And of course this is, in the great majority of instances, second-hand and not brand new stock for a very obvious reason.
“But” they say, “if properties were cheaper in those convenient locations, more people could afford to buy there and would not need to rent”. Great logic. Sure, let’s implement policies that will allow converting everything in such locations to cheap owner-occupier housing – and then we will end up with a real housing affordability problem for those who prefer or are forced to rent. But sure enough, taxpayers will be very happy to spend billions of dollars to address it, no worries.
The premise that renters will buy “cheap houses” rather than continue renting would be amusing if it was not promoted so seriously by those prominent commentators. The naivety of such thinking, on such a large scale (mind you, without any evidence and/or testing the assumptions), is staggering.
One only needs to look to late 1990 to understand why such thinking has no merit whatsoever. In particular, towards the end of 1990’s, the cost of owning a property was at a historically low level and in many locations renting was costing more than paying off a property and still, not everybody was prepared to buy, even if they could afford it easily.
All those commentators are forgetting the basic logic that drives people’s decisions – if prices are cheap, they are so for a reason. That is, owning is perceived by the majority as unattractive and without a merit, and cheap prices in relation to rental expenses only reinforce this perception. People need to perceive a positive outlook for the property market to want to own the place of their residence - this outlook can only be reinforced by a history of rising prices. It’s as simple as that, yet so difficult to comprehend for many.
Then we have such pearls of wisdom like grandfathering negative gearing on existing purchases but, at the same time, allowing for the writing-off of operational loses against capital gains. Great, let’s make tax affairs so complicated that nobody will be able to figure out whether they are making money or losing it. Accountants will love it and growth of employment at the Tax Office will propel Australia’s economic growth for the next few decades.
Or how about proclaiming that before 1986 there were no property investors in Australia (because this is what housing finance statistics “show”) and that the “current property investment boom crisis” is the fault of Keating and Hawke re-introducing negative gearing and Howard and Costello halving the capital gains tax on investment properties? This position conveniently disregards the fact that the proportions of rental stock remained relatively static for many, many decades. So what is really going on?
<img src="/images/2015/05/04/Occupied_private_dwellings.png" alt="">
Those commentators simply don’t comprehend that there was a shift in the investor profile from, a situation where a single person owned entire blocks of flats, to that where now many individual investors only own one flat each. Those aforementioned policies were just a catalyst enabling this transition to happen.
And because of these policies, people now have a choice to either live where they are and invest their extra money in the long term rental accommodation business (yes, it is a business after all) or upgrade their primary residence - and the financial outcome is the same at the end. Unbelievable but true, once you do the math.
But the biggest fable of all is that negative gearing is the reason prices are “so high” today. So, by removing negative gearing, we will restore “housing affordability” - whatever that means. Pity not many can understand what is really driving property prices in Australia.
It doesn’t fit in these people’s agendas that the cost of buying and renting in Australia is close to its historically best level, and that housing is more affordable now than at many points in time in the last three decades. Even in Sydney – the apparent “epicentre of housing speculation”.
<img src="/images/2015/05/04/Long_term_purchase_affordability_Sydney.png" alt="">
Interestingly enough, NSW’s share of net rental income losses was only 5.7% in the 2012-13 financial year (or $312 million out of $5.5B claimed by investors – as per Table 15 of recently published statistics that show all income and expense items from rental property schedules, by the state/territory location of the property). This means that just two years ago, in aggregate, profits from long term rental accommodation business in NSW almost matched losses.
In other words, negative gearing was not as widespread in NSW as everybody is led to believe. No surprise here at all since purchases with gross rental yields of 6-7% were not that uncommon in Sydney in 2012. But why bother with facts that spoil a “good story” for media attention.
By the way, where were these commentators in 1997-99, 2005/6, 2009 or 2012-13 when there were ample opportunities to buy property cheaply? Why they were not heralding those opportunities then as loudly as they now voice their opposition to negative gearing? (As a side note, did you notice how regularly these opportunities come about?) There is a simple answer - because back then they were chasing media headlines with another favourite crowd pleaser - the upcoming Armageddon.
My, in many ways, aggressive and ironic commentary serves the purpose of mobilising you - the reader - to start confronting these commentators and questioning their understanding of a concept they are so outspoken about. And secondly, treating what you read and hear on the news about negative gearing with a fair dose of scepticism.
After all, in the whole scheme of things, negative gearing is inconsequential for individual property investors – sure, it helps with cash flow but it does not impact profitability and certainly, it does not make houses more expensive. So, its abolition would not change a thing – but that point of view is missing from the public debate.
Journalists are failing in their duty to present information objectively by not offering contrasting opinions and, most importantly, by not questioning individual commentators on merits of their points of view.
I have a tip for anybody who wants to know whether a particular commentator has any idea about the topic of negative gearing - check if they consider negative gearing to be a cost to taxpayers, or offering extra profit for investors, or none of the above. If they do consider it a cost or extra profit opportunity, then you know you cannot take seriously anything they say, no matter what other credentials they present.
Arek Drozda is an independent property market analyst. Follow on Twitter @arekdrozda.
 
 
 
</body></html>

adrozda-Nq9GwoWWBW

Are publicity stunts driving the negative gearing agenda? Arek Drozda

<html><body>
GUEST OBSERVATION
Treasury recently released its <a href="https://bettertax.gov.au/files/2015/03/TWP_combined-online.pdf">submission to the federal Tax White Paper</a>. It has found a tax that actually confers a benefit on Australian citizens. That is, using it actually leaves us better off.
It isn’t a new tax - it is land tax.
Unbiased economists have always known a broad based nil exemption land tax has a marginal excess burden of zero. They have continually urged government to use it ahead of every other conceivable tax instrument available.
The net benefit comes about because foreign and domestic landowners must pay it yet it is spent solely on Australians.
Or, as Treasury describes it:
"Modelling also suggests that broad-based land taxes, such as municipal rates, have a low economic cost (Chart 2.9). This is because land is immobile (unlike other capital) and cannot be moved or varied to avoid tax. The model applies this assumption to both domestic and foreign ownership of land. Land taxes paid by foreign and domestic landowners are only redistributed to the domestic households, providing a benefit to Australian households and generating a negative marginal excess burden for a broad-based land tax shown in the chart."
<a href="https://www.prosper.org.au/wp-content/uploads/2015/03/ScreenHunter_6774-Mar.-30-10.24.jpg"><img class="alignright size-medium wp-image-8881" src="https://www.prosper.org.au/wp-content/uploads/2015/03/ScreenHunter_6774-Mar.-30-10.24-494x300.jpg" alt="ScreenHunter_6774-Mar.-30-10.24" width="494" height="300"></a>
There is much unrest at the high and growing level of foreign land ownership in Australia. We have abandoned the settler compact that all political parties once held as sacred: that every Australian citizen, no matter how humble, should enjoy the freedom, independence and privacy of land ownership.
Now, the share going to first home buyers is at historic lows yet there is no let to the foreign investment in Australian property, according to a recent NAB survey:
<a href="https://www.prosper.org.au/wp-content/uploads/2015/03/NAB-foreign-buyers28.png"><img class="alignright size-full wp-image-8880" src="https://www.prosper.org.au/wp-content/uploads/2015/03/NAB-foreign-buyers28.png" alt="NAB foreign buyers28" width="434" height="274"></a>
I urge a debate on land tax, not because it takes from foreigners – although that is certainly a positive feature – but because we would be richer, more active and freer with it.
If a tax exists with a positive excess burden, we have an obligation to examine its features and shortcomings with a microscope.
The only genuine negative I have ever heard about land tax came from nobel laureate<a href="https://www.youtube.com/watch?v=yS7Jb58hcsc" target="_blank"> Milton Freidman, who observed</a>: “It’s the only tax left on the books for which people have to write a big cheque.”
David Collyer is policy director of <a href="https://www.prosper.org.au/" target="_blank">Prosper Australia</a>.
David ran as a Senate candidate for the Australian Democrats in the 2013 federal election.
This article first appeared on Prosper's website.
</body></html>

dcollyer-7rQRVBSdz6

A land tax would leave Australia a lot better off: David Collyer

<html><body>
GUEST OBSERVATION
Tax concessions for investment housing include a 50% discount off normal individual tax rates on capital gains together with so-called ‘negative gearing’ arrangements, which allow investors to deduct ‘losses’ made on rental property investments (including interest on loan re-payments) from other income (including wages).
Deductions can, of course, be claimed for losses on other kinds of investments and this would not normally be regarded as a ‘tax concession’. The unique feature of ‘negative gearing’ for investments in assets such as property, shares, and agricultural schemes is that income from these investments often comes mainly from capital gains – the increase in the value of the asset over time.
Under the Capital Gains Tax rules these are only taxed when the asset is sold, and then at half the marginal tax rate. Yet expenses associated with the investment (especially interest payments on loans) can be deducted from tax annually and often exceed rental income.The tax system treats this as a ‘loss’. These ‘losses’ can be offset against other income that would otherwise be taxed at the full marginal rate (mainly wages).
In reality, in most cases the investment is not making a ‘loss’ because it is accruing capital gains. Otherwise there would be no point investing in these assets. If the tax system properly matched income and deductions, then either capital gains would be taxed each year at normal marginal tax rates or deductions for ‘losses’ could not be offset against other income until the capital gains are taxed on sale of the asset.
Whenever deductions for investment expenses are not properly matched with income, there is always a risk that people will maximise ‘losses’ in order to avoid tax on their other income.
This is achieved by structuring debt so that interest expenses on loans to purchase the asset exceed income from the investment such as rent, for instance by using more expensive ‘interest only’ loans (often with flexible interest re-payments so that investors can ensure their costs always exceed rental income), or by borrowing more to buy second and third properties as soon as the first one turns a ‘profit’.
In recent years, since superannuation legislation was amended to allow it, investors have been encouraged to borrow to invest in rental property through self-managed Super funds. A major advantage of this strategy is that capital gains on the sale of assets in Super funds are normally free of tax. Negative gearing is mainly used for rental property investment because housing is perceived to be a safe investment to borrow against, but it is also used to invest in agriculture (for example pine plantations), and shares (‘leveraged equities’).
The large-scale use of these tax schemes not only threatens public revenue and faith in the fairness of our tax system. It also reduces the efficiency of investment by encouraging people to invest with tax avoidance in mind rather than to achieve the best return at the least risk. It destabilises the economy by encouraging people to borrow more than they otherwise would and adding fuel to booms in asset prices – which are often followed by recessions.
Given that most negatively geared investment is in rental property, these schemes impact especially on housing markets. They encourage borrowing to speculate on housing prices, rather than patient investment in housing to achieve the best long term rental yield.
How widespread is their use? In the last year for which tax statistics are available (2011) two thirds of individual rental property investors – 1.2 million people - reported deductable losses of $14 billion. When those who reported profits from rental properties are included, taxpayers still claimed $8 billion in net rental losses overall in that year. Both the overall number of rental property investors, and the proportion who are negatively geared, have risen dramatically since 2000, when tax rates on personal capital gains were halved.
<img src="/images/2015/04/22/neg-april-22-one.jpg" alt="">
Source (figures 4-6): Eslake (2014)Op.cit
What do they cost and who gains? The Grattan Institute calculated that the cost of negative gearing concessions (compared to a regime in which deductions could only be claimed against income from the same investment) was $2 billion in 2011-12. The cost of the 50% discount on Capital Gains Tax for individual investors was $5 billion.
There is a perception that negatively geared investors are mostly middle income earners – so called ‘mum and dad investors’. This claim is usually based on the Tax Statistics data on individual taxpayers produced by the ATO. These data should be used with caution as they understate the incomes of negatively-geared rental property investors for the following reasons:
<ul>
<li>Taxpayers are divided according to taxable income, which is artificially reduced by tax deductions arising from negative gearing strategies;</li>
<li>Many property investors (especially those with higher incomes) control their investments through private trusts.</li>
<li>They are listed in the tax statistics as recipients of trust income rather than direct property investors.</li>
</ul>
When the Reserve Bank compared investment in rental property by individual taxpayers at different levels of total income (rather than taxable income), they found that over half of all geared rental property investors earned over $100,000 (the top 10% of taxpayers in 2011) and 30% earned over $500,000.
<img src="/images/2015/04/22/neg-april-22-two.jpg" alt="">
Source: RBA (2014) “Financial stability review, September 2014. Box C: Households’ investment property exposures, evidence from tax and survey data.”
At the household level, the tax benefits of negative gearing and the Capital Gains Tax discount go mainly to those with high incomes.
In 2006, households in the highest income quintile (top 20%) received an average benefit of $73 per week from negative gearing and $30 per week from the capital gains tax discount. When combined ($103 per week), this was twice the benefit received by the middle quintile ($45 per week) and over 12 times what the lowest income quintile receives (a combined eight dollars per week).
<img src="/images/2015/04/22/neg-april-22-three.jpg" alt="">
Source: Yates (2010) in Stewart ‘Housing and Tax Policy’. Tax concessions by gross household income quintile, 2006.
Weekly benefit from negative gearing is averaged over only those households with negative rental income. Sourced from Melbourne Institute HILDA survey.
This is an exerpt from the Australian Council of Social Service (ACOSS) report, ‘Fuel on the fire: Negative gearing, Capital Gains Tax and housing affordability. Read the full report <a href="https://www.acoss.org.au/media/release/new_report_calls_for_action_on_negative_gearing_and_capital_gains_tax" target="_blank">here</a>.
Peter Davidson is senior advisor with ACOSS.
Ro Evans is policy officer with ACOSS.
</body></html>

po-LsXgBTHBmX

Negative gearing and CGT discounts - how these tax breaks work: ACOSS

<html><body>
GUEST OBSERVATION
Achieving tax reform is often a long process as the government of the day looks for consensus before presenting proposals to the Parliament. The process that the current government is following seems to be even longer and more tortuous than most.
It doesn’t help matters when the Treasurer appears to have dismissed a number of suggestions put forward by Treasury just two weeks after the release of the discussion paper.
In his <a href="https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;db=CHAMBER;id=chamber%2Fhansardr%2F135b167f-578d-4414-a5b0-b2a35bc1cc32%2F0238;query=Id%3A%22chamber%2Fhansardr%2F135b167f-578d-4414-a5b0-b2a35bc1cc32%2F0000%22" target="_blank">2013-14 Budget Reply</a> speech incoming prime minister Tony Abbott promised to “consult with the community to produce a comprehensive white paper on tax reform. We’ll finish the job that the Henry review started and this (Labor) government squibbed.”
One would have thought that the <a href="https://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm" target="_blank">2010 Henry Tax Review</a> - which sought to look forward to the next 40 years - was a comprehensive review of the tax system.
Instead, in the current process Treasury officials have gone back to basics. The long-promised white paper is still to come - the <a href="https://bettertax.gov.au/publications/discussion-paper/" target="_blank">Re:think</a> discussion paper released on 30 March is yet another consultation paper, which sets out a range of questions, but no concrete proposals.
However comments made by Hockey in an interview in the Australian Financial Review this week appears to pre-empt some of the more controversial suggestions in this discussion paper, with AFR columnist Laura Tingle writing that the treasurer “poured cold water” on any significant alteration of dividend imputation, the indexing of income tax thresholds to tackle bracket creep and on changes to the capital gains regime.
Google and ‘Netflix’ taxes
The emerging <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporate_Tax_Avoidance/Public_Hearings">evidence</a> from last week’s Senate Hearings in the Inquiry into Corporate Tax Avoidance shows the need for reform of international taxation. Although the Re:think discussion paper does raise the problem, there are no suggestions or specific questions in relation to the issues around international tax avoidance - in fact the thrust of the paper is to seek ways to encourage foreign investment.
Re:think asks the question: "Q 34. How can tax avoidance practices such as transfer pricing be addressed without imposing an excessive regulatory burden and discouraging investment?"
The treasurer has proposed a “Google tax”, modelled on the <a href="/news">UK’s diverted profits tax</a>, which was intended to counteract “contrived arrangements that exploit the permanent establishment rules”. However there are serious <a href="https://theconversation.com/experts-caution-australia-on-unilateral-google-tax-39794">concerns</a> as to whether a unilateral approach to the problem will be effective.
The discussion paper raises questions about the GST exemption for imported goods, particularly those ordered on-line. The so-called “Netflix tax” singles out multimedia downloads and is designed to address the situation where video streaming services based in Australia are required to collect GST on videos downloaded here, whereas services based overseas are not required to pay GST as the value is below the import threshold of $1,000. In the virtual world, this is a clear anomaly. The principle behind this move is worthy; but people are already working out how to circumvent the new tax.
Generally, however, broader GST reform will not be proposed unless there is consensus across political parties and the states.
There also seems to be <a href="https://www.skynews.com.au/news/top-stories/2015/03/31/shorten-open-to-top-end-super-changes" target="_blank">consensus</a> that the taxation of superannuation does need to be reformed. Even the <a href="https://www.smsfassociation.com/library/submissions/budget-submission-2015.aspx?categoryid=1375#.VSxokfBUrF">superannuation industry</a> <a href="https://www.superannuation.asn.au/media-release-1-april-2015">acknowledges</a> that the concessions are skewed to high income earners, and following the repeal of the <a href="https://theconversation.com/abbott-is-not-playing-fair-removing-super-contribution-will-hurt-working-poor-14604" target="_blank">Low Income Superannuation Contribution</a> (effective from 2017) low income earners effectively pay a higher rate of tax on superannuation than on their take-home pay.
Capital gains tax
But there are other issues raised in the discussion paper, particularly in relation to the taxation of investment income, that the treasurer has discounted before stakeholders have even drafted their submissions. "Q 19. To what extent is the rationale for the CGT discount, and the size of the discount, still appropriate?"
The 50% Capital Gains tax discount evolved from the indexation of capital gains that applied when CGT was first introduced.
It is hard to argue that a 50% discount can be justified in the current economic climate, with annual inflation running at less than 3%. Yet this week the Treasurer commented that changing the discount could restrict the flow of capital into start-ups. Although start-up companies are an important area of economic growth, it is only one investment sector.
Dividend imputation
The Discussion paper also asked: "20. To what extent does the dividend imputation system impact savings decisions?"
Dividend imputation, like superannuation and negative gearing, has popular support among the “mum and dad” investors in Australia. But there has been a global move away from dividend imputation systems, leaving Australia and NZ as the two remaining regimes.
The Henry Review <a href="https://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_b2-4.htm" target="_blank">recommended</a> that: "Dividend imputation should be retained in the short to medium term, but for the longer term, consideration should be given to alternatives as part of a further consideration of company income tax arrangements."
It has increased investment in Australian companies, whether individually or through superannuation, but it is increasingly anachronistic in the modern economy. However the Treasurer wants submissions to address “how it can be improved” rather than “get rid of it”.
"21. Do the CGT and negative gearing influence savings and investment decisions, and if so,how?"
Again, the paper highlights the interaction between <a href="https://theconversation.com/explainer-why-negative-gearing-is-bad-policy-21882" target="_blank">negative gearing</a> and capital gains tax and suggests a quarantining mechanism to reduce the immediate tax benefit from negative gearing. However, although the Treasurer seemed <a href="https://www.abc.net.au/am/content/2015/s4207069.htm" target="_blank">open to discussions</a> when the paper was released two weeks ago, he told the AFR this week: "We’ve got to be very careful about constantly adjusting the policy. There is a temptation to constantly adjust policy for the volatility of the times. Now, we are in a world where that is incredibly liquid, where yields are incredibly low. That is creating perverse incentives."
But there are ways to construct reform that would not have an adverse impact on other investments.
Bracket creep
Although the <a href="https://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report" target="_blank">intergenerational report</a> and the discussion paper highlighted that the main source of revenue growth would come from bracket creep, Hockey has flagged that he does not agree with indexation of thresholds. There is some evidence to support this, as the previous experience of indexation of tax thresholds in the early 1980s contributed to inflation as wage demands increased.
However it is also clear that the government does not intend to see an increase in the personal tax rate; and has already said that the <a href="https://www.ato.gov.au/general/new-legislation/in-detail/direct-taxes/income-tax-for-individuals/temporary-budget-repair-levy/">Budget Repair Levy</a> imposed last year on incomes over $180,000 will not be extended beyond the legislated three years. Therefore the formula of the last 30 years, allowing the Government to adjust thresholds periodically, seems set to continue.
So where is the money coming from to reduce the deficit in the current budget? The suggested Bank Deposit Tax is <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2015-04-02/big-banks-warn-federal-government-against-tax-deposits/6366562">opposed </a> by the banks, who will engage in a campaign like that of the miners in relation to the Minerals Rent Resources Tax. Most of the suggestions from Treasury have been excluded by the Treasurer. The Senate has shown that it will not support further reductions in benefits and services that impact on the least well off. Most government agencies will tell you that they have been squeezed dry.
It is time for an action plan in which all of the options are on the table.
Helen Hodgson is associate professor, Curtin Law School. Curtin Business School at Curtin University.
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>. 
</body></html>

hhodgson-WTYf8w7F7q

The Tax white paper - only good for fish and chips now? Helen Hodgson

<html><body>
Hi Margaret,
I have just purchased a house as a principle place of residence for $295,000 with $235,000 left in the mortgage and $225,000 in an offset account. 
We are using the money in the offset account (approximately $30,000) for renovations, and are looking to spend the rest on the purchase in (hopefully two) investment properties.   Do you think this is a good plan of attack or should I keep the money in the offset account and use the equity in the principle place of residence as a deposit on an investment property? 
With $30,000 on renovations hopefully I can have the house re-evaluated for $350,000. 
Kind regards,
Dave
Hi Dave, 
When investors come to my company Destiny for assistance, around 80% of them have finance structures in place that are not well thought through and which are potentially costing them some good tax deductions.
Around 20% of them are straight out incorrect, some of them using strategies which may contravene the spirit of the tax act or in other ways be a potential issue going forward.
When you buy any kind of property, be it for investment or as a principle place of residence (PPOR), you should be thinking with an holistic view – and considering what you may be wishing to achieve financially over many years, rather than just what you need at that moment in time. 
You should have a forward plan and know what level of financial independence you wish to achieve and over what time, as well as many other things such as your risk profile and current and future cash flow needs.
Then you must consult with a professional who can also assist you from a property investment advice perspective as well as getting you the loans you need – and to do this they must have some kind of qualification such as the Qualified Property Investment Advising qualification offered through <a href="https://www.pipa.asn.au">www.pipa.asn.au</a>.
Before you use the $195,000 which will remain in offset after your renovations to invest, you should first clear away all and any personal debt.  This is because such debt is non- deductible, and to use cash as a deposit for a deductible investment while you still have non- deductible debt can be a mistake. 
Then you need to be very sure that you plan to remain in your current PPOR for the duration – if you think there may be any chance that the future may bring a  desire to upgrade into a larger and more expensive home of your own, you will want to preserve your cash to use for that time. 
If you use up your available cash on an investment or two, while you can draw this back to use to buy a bigger home of your own, doing so would create a non- deductible, or personal debt which carries no deductibility.
If this all sounds confusing, this is because it is!  And so you need good guidance which considers a holistic approach to your entire financial future, not just this current home, or the immediate few properties you are ready to buy.  
Regards,
Maragret
Have a property question?  <a href="mailto:askmargaret@propertyobserver.com.au" target="_blank">Ask Margaret!</a>
Please not that due to the number of requests, Margaret may not be able to answer every question.
</body></html>

tax

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

tax