Industry groups have said that the federal government’s proposed changes to discretionary trusts could unsettle project feasibility as developers weigh future investment decisions.
Australia’s peak housing, building, property, and real-estate bodies have warned that the federal government’s proposed discretionary trust tax changes could erode developer confidence, delay projects, and shrink the housing pipeline.
New polling commissioned by the Housing Industry Association (HIA), Master Builders Australia, Property Council of Australia, Real Estate Institute of Australia, and Urban Development Institute of Australia found that more than 60 per cent of small- to medium-sized residential and commercial developers expected the proposed changes to affect the timing or viability of their projects.
Of those developers anticipating an impact, 37 per cent said one or more projects would be cancelled, the most common expected response in the survey.
Confidence hit
The polling, undertaken by New Accent Research among almost 1,200 small and medium-sized business owners, suggests the proposed reforms are being viewed well beyond the property sector as a confidence and investment issue.
Almost three in 10 surveyed businesses said they used discretionary trusts to run operations, hold assets, or manage commercial risk.
Among businesses using discretionary trusts, 77 per cent reported lower confidence as a result of the proposed changes.
More broadly, 54 per cent of business owners aware of the policy said it had weakened their confidence in their industry’s outlook, while only 3 per cent said it had improved confidence.
Almost half of respondents aware of the reforms said they were considering at least one response, including reducing investment, restructuring their business, or delaying expansion.
HIA managing director Jocelyn Martin said the sector was already confronting soft demand conditions following other budget tax changes affecting investors.
“New home sales have fallen for the last four months, after the taxation changes for investors in the federal budget. New trust rules for builders and developers will see now see viability of other projects under threat. Australia cannot tax its way to 1.2 million homes,” Martin said.
Supply consequences
Master Builders Australia CEO Denita Wawn said the industry believed the reforms would also have major repercussions for households trying to buy or rent homes.
“At a time when we have a housing supply crisis, these changes would hamstring the very businesses that are central to the solution. The consequences of this poor policy will not only impact these businesses, it will also flow onto home buyers and renters,” Wawn said.
The housing bodies noted that residential projects require developers to balance land, construction, funding, planning, holding, and sales costs against anticipated returns.
They said that a less favourable tax treatment for widely used trust structures may push marginal projects below their viability threshold, resulting in postponements, restructures, and cancellations.
Property Council CEO Mike Zorbas said the survey results showed the potential scale of the risk to the development pipeline.
“Almost one in four property and development companies believe one or more of their projects will be cancelled as a result of the government’s new taxes. That would be a catastrophe for housing supply,” Zorbas said.
“Housing supply depends on market confidence, investment and projects stacking up commercially.
“Right now buyer confidence and project feasibility is at a low water mark in key markets across the country. And that is before the next interest rate rise.”
[Related: Budget and SMSF changes forecast to substantially reduce supply]
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