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South EastProperty Breakfast
Leaders in Property Intelligence.
charterkc.com.au
Research
Our Property MarketsCurrent issues & future trends
PREPARED BYGLENN LAMPARDDIRECTOR VALUATIONS - STRATEGIC RESEARCH
Leaders in Property Intelligence.
TheEconomy.
UnderlyingFundamentals.
TheMarkets. Summary.
Context The DriversPopulation
Residential &Commercial
Markets
…there are always risks
Current issues & future trendsAgenda
Leaders in Property Intelligence.
TheEconomy.
UnderlyingFundamentals.
TheMarkets. Summary.
Context The DriversPopulation
Residential &Commercial
Markets
…there are always risks
Current issues & future trendsAgenda
Leaders in Property Intelligence.
The economyKey economic indicators
Source: Reserve Bank of Australia (November 2018)
Leaders in Property Intelligence.
The economyEconomic composition
Source: Reserve Bank of Australia (November 2018)
Leaders in Property Intelligence.
The economyEmployment – Melb & Syd outperforming
43.7
75.6
37.4
54.2
65.6
83.3
7.1
28.6
3.5
0
20
40
60
80
100
15 16 17
Annu
al J
obs
Gro
wth
('00
0)
Sydney Melbourne Brisbane In last 5 years:
236,000 new jobs added in Melbourne 229,00 new jobs added in Sydney 57,500 new jobs added in Brisbane
In 2017 Australia's new jobs went to:
Melbourne: 53%Sydney: 24%Brisbane: 2%
Source: ABS
Leaders in Property Intelligence.
TheEconomy.
UnderlyingFundamentals.
TheMarkets. Summary.
Context The DriversPopulation
CommercialMarkets
…there are always risks
The opportunitiesAgenda
Leaders in Property Intelligence.
% of Total Population in Two Largest Cities(Australia = Sydney @4.8 M; Melbourne @4.5M)
Cities – Australia is uniqueEconomic activity & investment is concentrated in Melb & Syd
Source: ABS & various National agencies
4% 5%
12%
20%23%
27% 28%
35%
0
5
10
15
20
25
30
35
40
China India USA Germany France UK Canada Australia
% N
atio
nal P
opul
atio
n
Leaders in Property Intelligence.
Underlying fundamentalsPopulation Australia…below peak but high by historical
Source: Charter Keck Cramer, ABS
Leaders in Property Intelligence.
Underlying fundamentalsPopulation Australia…demographic change, not just size
Source: Charter Keck Cramer, ABS
MELBOURNE
SYDNEY
Leaders in Property Intelligence.
Underlying fundamentalsPopulation South East…demographics
KINGSTONGREATER
DANDENONG
CASEY CARDINIA
FRANKSTON
MORNINGTON PENINSULA
Leaders in Property Intelligence.
Underlying fundamentalsPopulation South East…demographics
KINGSTONGREATER
DANDENONG
CASEY CARDINIA
FRANKSTON
MORNINGTON PENINSULA
SOUTH EAST986,010(22% of metro)
Aust. 61.0%England 4.0%India 4.0%Sri Lanka 2.1%New Zealand 1.9%(China 1.5%)
Leaders in Property Intelligence.
Underlying fundamentals
Source: Charter Keck Cramer, ABS
Population – Melbourne & Victoria
Victoria (y/e Mar-18 : 137,400) Australia (y/e Mar-18 : 380,700)
, ABS
Leaders in Property Intelligence.
Underlying fundamentals
Source: Charter Keck Cramer, ABS
Population – Melbourne’s South East
As a % of Greater Melb
(*includes Monash)
20.2%
30.5%
19.9%
, ABS
Leaders in Property Intelligence.
Net Interstate Migration (NIM)VIC attracting people from each State
Source: Charter Keck Cramer, ABS
Leaders in Property Intelligence.
Net Interstate Migration (NIM)VIC attracting people from each State
Source: Charter Keck Cramer, ABS
Leaders in Property Intelligence.
Net Interstate Migration (NIM)VIC attracting preferred age groups…QLD to follow
Source: Charter Keck Cramer, ABS
20-29 year old 30-39 year old
Leaders in Property Intelligence.
Underlying fundamentalsOur drivers…
PEOPLE
Leaders in Property Intelligence.
TheEconomy.
UnderlyingFundamentals.
TheMarkets. Summary.
Context The DriversPopulation
Residential &Commercial
Markets
…there are always risks
Current issues & future trendsAgenda
Leaders in Property Intelligence.
0
5,000
10,000
15,000
20,000
25,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f 2019f 2020f
The apartment marketMelbourne completions
Source: Charter Keck Cramer
Leaders in Property Intelligence.
The development marketGreenfields
Source: National Land Survey Program
Leaders in Property Intelligence.
The office marketA National context since the GFC
Source: Property Council of Australia (OMR)
perthadelaide
sydney
brisbane
canberra
melbourne0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
SydneyCBD Melbourne
CBD
Canberra BrisbaneCBD
Perth CBD AdelaideCBD
Net additions
Net absorption
Leaders in Property Intelligence.
The office marketMelbourne by region
Source: Property Council of Australia (OMR) & Charter Keck Cramer
melbourne
65%12%
6%
10%4% 3%
Central Melb
City Fringe
Inner East
Outer East
South East
North & West
8.6m sq. m
Leaders in Property Intelligence.
The industrial marketThe logistics… …& other “e-tailers”
Leaders in Property Intelligence.
The industrial marketThe logistics…
Source: The Australian & Goodman
Bob Black, Group Chief Operating Officer for Australia Post said, “Australians spent $21.3 billion online last year, driving parcel volumes up, and this love affair with online shopping isn’t slowing down. Our $200 million investment – which includes automated processing technology and improved parcel scanning and tracking – is demonstration of our commitment to Queensland jobs and to remaining Australia’s preferred and most trusted delivery provider, and will ensure we’re well-equipped to manage future volume growth.
• 48,677 sqm purpose built warehouse with a further 20,000 sqm in covered awnings• 1,600 sqm of office space
Leaders in Property Intelligence.
0
50
100
150
200
250
300
350
400
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Average annual consumption Pre GFC Average Post GFC average Recent Average
The industrial marketAverage annual consumption of industrial land (hectares)
Source: Department of Environment, Land, Water and Planning 2017 (UDP)
“Industrial land consumption levels have increased to levels approaching Pre-GFC…”
Leaders in Property Intelligence.
The industrial market…land
31%
20%10%0.6%
37%
2%
Western Region Northern Region
Eastern Region Inner South East Region
Southern Region Inner Metro Region
By region
26,017hectares
Source: Department of Environment, Land, Water and Planning 2017 (UDP)
Leaders in Property Intelligence.
Melbourne metropolitan industrially zoned land
26%
14%
17%4%2%
0%10%
5%
9%
13% 0%
Western SSIP Western Region - Remainder
Northern SSIP Northern Region - Remainder
Eastern Region Inner South East Region
Southern SSIP Officer/Pakenham SSIP
Hastings SSIP Southern Region Remainder
Inner Metro Region
Vacant industrial land (hectares)
6,669hectares
Source: Department of Environment, Land, Water and Planning 2017 (UDP)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Western SSIP Northern SSIP Southern SSIP Hastings SSIP Officer/PakenhamSSIP
Zoned Vacant Land Proposed Future Industrial
“Of the 6,669 of vacant industrial land, two thirds are
located within SSIPs…”
Leaders in Property Intelligence.
Share of workplaces by industry category 2015/16
9% 12% 8% 12% 9% 13% 10% 6% 8% 10% 10%
12%21%
13%20%
9%
19%17%
18%23% 16% 16%
9%
10%
6%
10%
8%
6%10%
39%33%
14% 13%10%
13%
12%
11%
10%
18% 16%
9% 10%
11% 12%24%
16%
22%
19%
26%
15% 21%
18% 15%
24% 22%
16% 6%
6%
7%
4%
4% 3%
3% 1%
3% 5%
20% 22%33%
21%33%
23% 23%7% 10%
22% 22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Manufacturing
Transport & W'housing
Wholesaling
Construction
Bus. & Prof. Services
Population Services
Other
Economic structure of SSIPs
Source: Worksafe Victoria (Department of Environment, Land, Water and Planning 2017 UDP)Based on the number of workplaces identified in industrial zones by Worksafe Victoria (unpublished data)
2% 9% 113
0%%9%
19
0%%
8%
66%
1%%
10%
1818
9%%
26%
1515
%%
4%
44%
1%33%
223
Leaders in Property Intelligence.
The retail marketRetail trade…just eat it
Source: SCCA Research (October 2018 release)
Leaders in Property Intelligence.
The retail marketRetail trade…just eat it
Source: ABS (November 2018 release, seasonally adjusted)
38%
18%9%
6%
16%
13%
Victorian RetailTurnover
September 2018
$7.02b
Food retailingHousehold goodsClothing, footwear & personalDept storesOther retailingCafes, restaurants & t/a
Leaders in Property Intelligence.
The retail marketFood based at the expense of Department stores
Source: ABS (Cat 8501.0) & SCCA Research
Dandenong Indian food & culture tours
Leaders in Property Intelligence.
The retail marketRetail trade…just eat it
aders in Propert Intelligence
Leaders in Property Intelligence.
The retail marketFood, and the experience…
Leaders in Property Intelligence.
TheEconomy.
UnderlyingFundamentals.
TheMarkets. Summary.
Context The DriversPopulation
Residential &Commercial
Markets
…there are always risks
Current issues & future trendsAgenda
Leaders in Property Intelligence.
Commercial.Capital markets.
Risks.
No doubt market iscooling
Solid populationgrowth remainsMedium density
Townhouses
Income growthwith Melb & Syd
focus on CBD officeRetail challenges
Industrial hot
Domestic &foreign capitalHow low can
yields go?New core asset
classes?
Immigration policyHousehold debtPlanning policy
Trump
Current issues & future trendsSummary
Residential.
Leaders in Property Intelligence.
DisclaimerThis report is provided for reference only and should not be relied on in isolation. It is incumbent on the Recipient to make their own enquiries, examinations and investigations, and rely on their own verified information. Charter do not warrant the appropriateness of the information for your purpose.
Whilst every care has been taken in the preparation of this report, the Recipient acknowledges that Charter give no warranty as to the accuracy or completeness of any information contained in this report or which may be provided in association with it, in writing or provided orally, or whether provided on or before the date of this report or in the future by Charter. The Recipient acknowledges that the contents of this report is based on information available as at the date of preparation.
Any statements as to future affairs are speculative and rely on assumptions and events in the future (some or all of which may not be satisfied or may not occur). All images are for illustrative purposes only and remain the property of the copyright holder.
ConfidentialityThe contents of this report are strictly confidential and no portion of this report may be forwarded, reproduced, duplicated, or revealed in any manner whatsoever by the Recipient without prior written consent of Charter. The Recipient must not make this report available to others. The Recipient acknowledges that the contents of this report are valuable to Charter and they may suffer loss and damage in the event that this confidentiality is breached. Charter reserve their rights to take whatever action necessary against the Recipient in the event that this confidentiality is breached.
Disclaimer
Leaders in Property Intelligence. 11/15/2018 41
INVESTING IN VICTORIASue McMillanVictorian Government, Department of Economic Development, Jobs, Transport and Resources
As a member of the investment and economic projects team at Invest Victoria, and with a thorough understanding of Local, State and Federal Government, Sue works to build strong, productive relationships with businesses throughout metropolitan Melbourne, other government departments and agencies and the local government sector.
Sue presented a high-level summary of investment opportunities and activities in the South East, the state and Australia. She discussed the trends and factors that are impacting investment businesses and the potential impact on the property industry.
Our focus
Our sectors
Our office locations
ContactInvest Victoria
Victorian Government Business and
Trade Office - Dandenong
48 Pitcher Partners. All rights reserved.
Liberal and Laborkey tax policies
Other recent developments
WHAT WE WILL TALK ABOUT TODAY
49 Pitcher Partners. All rights reserved.
Key tax policies Corporate
tax rate cuts
No refunds of franking credits
Minimum tax on trust distributions
Remove negative gearing
Reduce CGT discount
Liberal policy Labor policy
Other measures –business as usual
50 Pitcher Partners. All rights reserved.
Key tax policiesCorporate tax rate cuts
LiberalKey tax policies
* ‘Base rate entity passive income’ includes most dividends, interest income (with some exceptions for certain lenders), rental income, and net capital gains.
2017-18 2018-19Default rate 30% 30%
Reduced rate 27.5% 27.5%
Criteria for reduced ratePassive income <= 80% of assessable income <= 80% of assessable income
Aggregated turnover < $25m < $50m
51 Pitcher Partners. All rights reserved.
Key tax policiesCorporate tax rate cuts
LiberalKey tax policies
• Currently legislated tax cut to 25% where turnover < $50m
• Broader-based cuts to eventually apply to all companies blocked
• Rate of 25% originally scheduled to apply from 1 July 2026 but date brought forward to 1 July 2021
Income year Aggregated turnover
Previous rates Current rates
2017/18 $25m 27.5% 27.5%
2018/19 $50m 27.5% 27.5%
2019/20 $50m 27.5% 27.5%
2020/21 $50m 27.5% 26%
2021/22 $50m 27.5% 25%
2022/23 $50m 27.5% 25%
2023/24 $50m 27.5% 25%
2024/25 $50m 27% 25%
2025/26 $50m 26% 25%
2026/27 $50m 25% 25%
52 Pitcher Partners. All rights reserved.
Key tax policiesExample – corporate tax rate cuts
LiberalKey tax policies
• Propco holds 10 rental properties
• Its only income is rental income
• Its aggregated turnover is $20m for the 2018-19 year
• Rent (exclusive use of property) is passive income
Rental income
Propco Pty Ltd
53 Pitcher Partners. All rights reserved.
Key tax policies
• How does Australia’s corporate tax rate compare to that of other countries?
– France, Germany, Japan and the US have higher rates
– Although the US is reducing its rate
• Headline rate of tax does not equal effective rate of tax
• How will it affect the government’s ability to get the budget back to surplus?
Corporate tax rate cutsLiberal
Key tax policies
54 Pitcher Partners. All rights reserved.
Key tax policiesPotential wastage of franking credits
LiberalKey tax policies
Franking credits can be lost where company becomes eligible for reduced franking rate
Franking at 30% Franking at 27.5%
Company
Profit 1,000,000 1,000,000
Tax payable @ 30% (300,000) (300,000)
Net cash available to pay dividend 700,000 700,000
Individual shareholder
Fully franked dividend 700,000 700,000
Gross-up 300,000 265,517
Taxable income 1,000,000 965,517
Tax payable @ 47% (470,000) (453,793)
Add: franking credit 300,000 265,517
Net tax payable (170,000) (188,276)
Total tax payable 470,000 488,276
Effective tax rate 47% 48.83%
55 Pitcher Partners. All rights reserved.
Key tax policiesProperty changes
LaborKey tax policies
Negative gearing
• To be limited to new housing
• Losses to be quarantined and can be offset against income and capital gains in subsequent years
• Application date after next election
• Investments made before that date unaffected
CGT discount
• CGT discount for assets to be halved to 25%
• Exceptions – super funds or small business assets
• Application date after next election
• Investments made before that date unaffected
56 Pitcher Partners. All rights reserved.
Key tax policiesExample – Negative gearing
LaborKey tax policies
Consider a salary and wage earner with a rental property
Year 1 Year 2 Year 3
Rental property
Rent 20,000 20,000 22,000
Depreciation (5,000) (4,800) (4,800)
Interest (10,000) (10,000) (10,000)
Other expenses (7,000) (8,000) (6,000)
Net income / loss (2,000) (2,800) 1,200
Other income
Salary 60,000 70,000 75,000
Taxable income – current 58,000 67,200 76,200
Taxable income – proposed 60,000 70,000 75,000
57 Pitcher Partners. All rights reserved.
Key tax policiesExample – CGT discount
LaborKey tax policies
Current position Proposed position
Consideration $1,000,000 $1,000,000
Less: cost base ($300,000) ($300,000)
Capital gain $700,000 $700,000
Less: CGT discount ($350,000) ($175,000)
Net capital gain $350,000 $525,000
Tax payable @ 47% $164,500 $246,750
Effective tax rate 23.5% 35.25%
• Australian resident individual holds property for at least 12 months
• Property is held on capital, not revenue account
• Property is disposed of for $1m
• Assume cost base of $300,000
58 Pitcher Partners. All rights reserved.
Key tax policiesProperty changes
LaborKey tax policies
What will these changes mean for the property market?
Some sectors of property market already softening
Existing investments are grandfathered – will there be a short-term increase in investment?
59 Pitcher Partners. All rights reserved.
Key tax policiesMinimum tax on trust distributions
LaborKey tax policies
• Minimum 30% tax on discretionary trust distributions to individuals over age of 18
• Intention to prevent use of trusts to split income to individuals to access lower marginal tax rates
• Exclusions – special disability trusts, testamentary trusts, deceased estates, fixed trusts, public unit trusts, farm trusts, charities
• From 1 July 2019
30% tax even though may be in lower tax threshold
TRUST
Corporate beneficiary
60 Pitcher Partners. All rights reserved.
Key tax policiesRefunds of franking credits
LaborKey tax policies
• Removal of refundable franking credits
• From 1 July 2019
• Individuals and SMSFs
• Will not apply to tax exempt charities, NFPs with DGR status
• Will not apply to pensioners and allowance recipients and SMSFs with at least one age pensioner or allowance recipient prior to 28 March 2019
61 Pitcher Partners. All rights reserved.
Key tax policiesExample – refunds of franking credits
LaborKey tax policies
Current –full refund
Proposed –no refund
Profit 100 100
Tax payable (30) (30)
Net profit after tax
70 70
Current –full refund
Proposed –no refund
Fully franked dividend
70 70
Gross up –franking credits
30 30
Taxable income 100 100
Tax payable @ 15%
(15) (15)
Franking credits 30 30
Cash refund 15 0
SMSF – not in pension phaseCompany
62 Pitcher Partners. All rights reserved.
• ATO has issued draft guidance on property and construction industry tax issues
• Paper covers
• Pitcher Partners has lodged submission highlighting significant concerns
– Capital vs revenue
– Characterisation of property development agreements
– Developer margins between related parties
– Land banking SPVs
ATO paperProperty and construction industry tax issues
63 Pitcher Partners. All rights reserved.
Other developments
Stamp duty and partnerships
Foreign purchaser additional duty
GST and withholding
• Danvest v Commr of State Revenue [2017] VSC 125
• Interest in partnership holding Victorian land not dutiable property
• Duties Act amended from 14 June 2018
• May be able to claim overpaid duty 5 years from initial assessment
• Foreign purchaser additional duty is 7% in Victoria
• Australian-incorporated company is a foreign purchaser if > 50% owned by foreigners (even if unrelated)
• Purchasers required to withhold GST
• Purchases of new residential premises or potential residential land (‘PRL’)
• From 1 July 2018
• Exemption if purchaser GST registered, entitled to ITC, and supply of PRL
Indirect taxes
1 Pitcher Partners. All rights reserved.
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