As a result Australia is no longer considered so transparent.

Since the budget, we have seen prudent comments from Property Council of Australia and reports from the likes of Business Council of Australia. These confirm what intuition tells us – that 7.5% of something is better than 15% of nothing.

Over the last few years, Napier & Blakeley has provided Due Diligence on about $10 billion of property investment transactions for international investors.

Since the budget announcement, we have spoken with many of these clients as well as others throughout Asia and all of them have stated that increased cost is one thing – especially when it’s retrospective – but the increased uncertainty about Australia’s investment landscape is their biggest concern. They have said that the MIT debacle has them considering alternative investment destination.

We are also aware that industry bodies such as The Asia Pacific Real Estate Association based in Singapore have been asked by their significant membership investing in Australia, to investigate these changes and lobby on their members behalf.”

Immediately following the Budget, a $1 billion investment prospect was whipped off the table, whilst since then perhaps another $1b has gone cold.

Unfortunately, the MIT withholding rate increases from 7.5% to 15% has won Senate approval, with a concession for new energy efficient buildings.

From 1 July 2012, Managed Investment Trusts that only hold newly constructed energy efficient commercial buildings will be eligible for a 10% tax rate (reduced from 15%).

The concession will be available in relation to office buildings that have obtained a 5-star Green Star rating or a predicted 5.5 star NABERS rating, and retail centres and non-residential accommodation that meet equivalent standards.

This green washing of poor policy is also unfortunate. It appears that the government is missing or has forgotten the point that the single most cost effective way in Australia to reduce energy use is in retrofitting existing buildings.

If any green coating were to be applied, it should have been in this sphere, not new build, especially as most (all) international / institutional grade investment properties will be 5 star anyway.

Incentive for retrofitting is still needed as many building owners don’t appear to ‘get’ the fact that an investment that saves you money is basically the same as an investment that gives you a positive return. Many options for sustainable retrofits provide a 20% – 33% – 50% returns on investment.

Retrofitting has the other benefit of providing for employment quickly in a depressed market, whereas new builds have long lead times.

We believe that it is in the interests of ALL of the property sector to ensure we fight for clarity and transparency and thus we ask Wayne Swan to ……..

“Keep your mitts off the MITs!”

Contact

Transaction & Asset Advisory
Rob Howells – 03 9915 6300 – rhowells@napierblakeley.com
Alastair Walker – 02 9299 1899 – awalker@napierblakeley.com

Sustainable Property Solutions
Peter Frith – 03 9915 6300 – pfrith@napierblakeley.com

Development Advisory & Quantity Surveying
Craig Smith – 03 9915 6300 – csmith@napierblakeley.com
Peter Hammond – 02 9299 1899 – phammond@napierblakeley.com
Paul Cosker – 07 3221 8255 – pcosker@napierblakeley.com

Property Depreciation & Insurance
John Mathew – 03 9915 6300 – jmathew@napierblakeley.com
Paul Mazoletti – 07 3221 8255 – pmazoletti@napierblakeley.com

A leading Australian property group has strongly criticised federal government tax changes, arguing they have stopped international investors from putting their money into Australian property.

The government in the budget doubled the withholding tax rate for international managed investment trusts (MIT), from 7.5 per cent to 15 per cent. The measure has since been approved in the Senate, with a concession for new energy efficient buildings.

Peter Frith, managing director of property and development adviser, Napier & Blakeley, said the action, with no consultation or warning, was a huge mistake and was apparently based on misguided thinking.

”It not just flies in the face of the plan to make Australia the hub of finance in Asia, but the move suddenly places Australia on the list of countries with significant ‘sovereign risk’,” he said. ”As a result, Australia is no longer considered so transparent and predictable.”

His comments followed similar remarks last month by The Trust Company, a leading property and infrastructure custodian, that the action put Australia’s status as a prime investment destination in doubt.

Mr Frith said immediately after the budget, a $1 billion investment prospect was whipped off the table. ”Since then more than $1 billion appears to have gone cold,” he said.

”Napier & Blakeley believes it is in the interests of all of the property sector to ensure we fight for clarity and transparency and ask [Treasurer] Wayne Swan to keep his mitts off the MITs.”

Napier & Blakeley’s joint managing director, Alastair Walker, said the ”MIT debacle” was raised in every meeting he attended during a recent visit to Singapore to meet clients and property advisers.

Many had raised serious concerns about the transparency of the Australian investment landscape and were considering alternative investment destinations.

Mr Walker said that in the past few years, Napier & Blakeley had provided due diligence on more than $10 billion worth of property investment transactions.

The Trust Company has been responsible for more than 30 managed investment trusts with $5 billion of direct investment in Australia since the MIT legislation was introduced in 2008.

Andrew Cannane, The Trust Company’s head of corporate client services, told Business Day from Singapore that since the budget measure, there had been a hiatus as people held off.

”I don’t think investment in Australia will dry up, but we will see less investment via the MIT structure,” he said.

Research by Colliers International found that since the government cut the WHT rate to 7.5 per cent in 2007-08, foreign investment in Australian commercial property markets rose from $1.2 billion in 2008 to $5.5 billion last year.

Written by Philip Hopkins
Displayed on the following websites – June 30, 2012
Sydney Morning Herald
WA Today
Canberra Times
Brisbane Times
The Age