Weekly Update 17/5/2021

17 May 2021

Welcome to this week’s Property News.

This week was all about Government budgets.

The Federal Governments expansionary budget will see tax cuts worth $29bn and support for the social services sector worth $33bn pump the economy, with growth expected to increase back to 2.5%, unemployment to drop below 5% and inflation to lift to 2.25%. The Property Industry was pleased with the budget with increased spending on aged care, health, child care and infrastructure all seen as positives for the industry.

On Friday, the Victorian Government released part of their 2022 Budget, announcing a significant increase in Land Taxes for property owners in the State. From July 2022, developers and speculators in Victoria will face a windfall gains tax of up to 50 per cent of the gain in value from a rezoning of land (not otherwise subject to a Growth Areas Infrastructure Contribution). The move is expected to generate just $40m in revenue for the Government and will put a stop to most urban development activity and have the affect of pushing down values of potential sites.

The Vic Government will also increase the land tax rates by between 0.25 and 0.30 percentage points and introduce a new premium Stamp Duty rate of 6.5 per cent for properties in excess of $2 million.

These tax hikes will make Victoria’s land tax rates, and stamp duty rates higher than in any other jurisdiction and reduce urban renewal opportunities and ultimately push investment into other states.

Clearly the various States and Territory Governments will be looking for ways to claw back expenditure on COVID19 and unfortunately land tax and stamp duties are one of the few measures the Governments can adjust to improve the revenue ledger. The risks of tax hikes is clearly higher.

The general share market has continued to trade toward record highs, regaining all of the lost ground since March 2020. The recovery reflecting a similar return to growth as was experienced in 2008 (refer to our sharemarket comparison chart below). The recovery for the AREITs still has some way to go with the AREIT index still trading -15% below the pre-covid levels. We expect the index will continue to drift as CBD office buildings and large retail centres continue to suffer with lower rents and higher incentives.

These conditions are assisting the case for M&A activity. This week Dexus finalised agreements with APN Proeprty Group to a takeover proposal and follows similar moves last week between Centuria and Primewest. We expect several of the pre-covid proposals to re-engage with National Storage REIT and Australian Unity Office Fund likely to see further attempts.

Control for AMP Capital’s Australian Wholesale Office Fund (AWOF) will likely move a step forward next week with a party to be named as a preferred bidder for the $7bn Fund. GPT, Dexus, and Stockland were named as contenders. We would expect Dexus to be a front runner, not only having recently gained the ADPF portfolio, but generally seen (at least by us) as the better manager of core assets.

If you have any news, information or research reports you’d like us to share with the market, please feel free to send me an email at info@propertymarkets.news.