The Property Council of Australia has suggested a number of amendments to the Treasury Laws Amendment Bill 2023, claiming that 20,000 new homes will be in jeopardy if the government passes the changes to the Thin Capitalisation legislation currently before the Senate.
Thin Capitalisation refers to a thinly capitalised company that relies on borrowing money to fund its assets. The Property Council believes that if approved, investment throughout the property industry will decrease.
Property Council Chief Executive Mike Zorbas says the Federal Government’s key election promise of one million well-located homes by 2029 would be dead in the water if the bill proceeds as is.
“This is a deeply regrettable own goal, but it can be reversed," he says.
“The proposed legislative changes put at risk investment in 20,000 build-to-rent apartments currently in planning and could also jeopardise the potential delivery of a total of 150,000 apartments over the next decade.
“The feasibility of projects in the Australian property sector industry relies on the involvement of third-party capital. Without that money, much-needed housing projects simply won’t go ahead.
”If the Bill is passed without the targeted amendments we propose, it will also significantly reduce investment in the Australian institutional property sector, which has the important role of building the homes and cities we live in.”
The Property Council submitted a number of suggestions to the Senate Economic Legislation Committee, which includes the endorsement of the new build-to-rent investment regime, the efforts to close the national housing deficit and the stated objectives of the Bill in the government’s original policy announcement and Second Reading Speech.
The Council goes on to say that the proposed changes significantly disadvantage Australian property trusts compared to major international trading partners, who have ‘carved out’ institutional property trusts from similar regimes, acknowledging, as our regime should, that the institutional property sector does not pose a genuine risk of profit shifting.
“Under the proposed draft legislation, the property industry would not have access to third party debt deductions, which is a pillar of the property trust financing structure,” Zorbas continues.
“In one of scores of confidential examples shared with us, a $2 billion project that would supply more than one thousand apartments, and due to start next year, will be cancelled because the investment assumptions no longer stack up.
“In fact, no property trust would currently meet the new third-party debt test under the legislative framework, effectively making the policy unworkable for the property sector.
“Amendments to the Bill can easily be made, so that it appropriately addresses integrity risks, facilitates standard commercial lending arrangements in the property sector and avoids contributing to Australia’s housing affordability crisis.”
Read the Property Council’s submission and proposed amendments to the legislation here.