A leading Australasian commercial real estate lender is calling on state governments to waive stamp duty fees in an effort to kick-start the residential apartment market.
Chief investment officer for the Melbourne-based MaxCap Group Bill McWilliams said state governments needed to be providing incentives to investors to buy apartments off-the-plan.
“This is what gives developers and everyone else comfort,” McWilliams said.
“If they know they can launch a project and it can be sold very quickly and de-risked at the back end, it’s what’s going to give the markets the confidence to continue to deliver residential apartments.
“I don’t see the federal government as having a huge impact in relation to property sales, I think it is actually down to state governments to provide incentives,” McWilliams, who is speaking at The Urban Developer’s Residential Apartment Development vSummit on June 19, said.
Most state governments have concessions and discounts on stamp duty for first home buyers, but only Western Australian offers a full stamp duty rebate on off-the-plan apartments valued at less than $500,000. Apartments over $600,000 attract rebates of 50 per cent.
The deal ends in October next year. Stamp duty waivers were introduced by the Victorian government in 2020 to keep the property market afloat during the worst of the pandemic but ended in June last year.
“And with increases in the amount of stamp duty that is required for foreign purchases as well, I think we need to have a look at that, to say, how can we actually incentivise people to buy these apartments off the plan which would then encourage more development,” McWilliams said.
McWilliams leads the national Investment team for MaxCap and is responsible for developing investment strategy, relationship management, and the oversight of deal origination, structure and negotiation.
He warns most of the country is entering a period where fewer new building commencements are taking place, and MaxCap is forecasting inventory shortages from 2024 with affordability becoming an issue shortly after.
“Actually, we are anticipating there will be an undersupply from 2024 all the way through to 2030,” he said.
“The government is about to turn on the tap to net migration, and that will also add to undersupply. Together with the fact both house prices and apartment prices have grown by double digits, affordability will become a real issue.”
McWilliams said once a developer acquires a site it can take five years to deliver a product, which means it will take time for a new supply to come on board.
Traditionally, said the financier, Australia’s market construction debt has been covered by pre-sales of apartments. When a development is completed the pre-sales will settle and repay all debt.
“Capital likes to de-risk its position,” McWilliams said. “But what’s transpired over the past few years is that it has been a lot harder to come by presales, it’s been hard to market stock, particularly in a lockdown environment. It’s hard to get people to display suites.”
He said even in today’s environment, where people are reading about rising interest rates and rising inflation, there are no incentives to buy an apartment off-the-plan.
“So, from a capital perspective, we’ve been looking at how can we still participate in these projects, how can we fund projects, help them get off the ground, but still protect our risk,” McWilliams said.
“We are prepared to back a sponsor and a project, to commence construction prior to achieving those historical pre-sales hurdles, because we know pre-sales do come once purchasers know construction has started. And particularly when they know it has been completed.”
McWilliams is quick to add the news for residential apartment developers and apartment buyers is not all bad.
“I think a worse market is actually where you have an oversupply and you are building in an environment where there is an abundance of apartments that nobody wants, and you have apartment towers sitting vacant. That will cause a crash in the market, and we are not heading for any of that,” he said.
“I actually think the strength of the Australian market has always been its stability and yes, we have a long history of price rises, where we have had periods of prices coming off but compared to the rest of the world those periods are very short, and prices come back.
“I think it really does come down to supply and demand fundamentals,” he concludes. “There will be caution, there will potentially less investors in the market for a period of time, which helps because that tempers the demand a little bit.
“But supply is being tempered as well because of the last couple of years and the amount of construction starts.”
McWilliams will present a case study-led presentation, on “matching your project to the best capital source”, at The Urban Developer’s upcoming vSummit.
The vSummit will include a keynote presentation by Corelogic’s Eliza Owen as well as three panel discussions and three case studies discussing residential apartment development.
To register for this upcoming event, click here.
