Legislation could harm the property sector, CEO says
Mike Zorbas (pictured above), the chief executive of the Property Council of Australia, appeared before the Senate Economics Legislation Committee Tuesday to discuss the proposed Thin Capitalisation Bill and its potential impact on the Australian property industry. He emphasised the need for modifications to the bill to support the Australian Government's housing objectives and expressed concerns about its current form.
“Even considering the government amendments, genuine, vanilla, third-party debt that is heavily relied upon by the property industry as a necessary means of doing business remains captured by this bill,” Zorbas said. “And this is the daftest part which no stakeholder who comes before you today will, or could, have a sensible answer to.”
Zorbas said that the proposed bill, even with government amendments, could negatively affect the property industry by capturing genuine third-party debt and hindering genuine commercial and business activities.
He said that the bill's drafting, including the proposed amendments, continues to impede the genuine commercial and business activities of the property sector.
“As a result, it will make the Australian property sector less attractive to global investment and limit the capital required to build our nation,” he said.
Zorbas expressed concerns that the bill, if passed in its current form, could hurt project feasibility, particularly large-scale projects such as housing and build-to-rent housing, by making investment returns too low to proceed.
Unintended consequences
Zorbas pointed out that the bill could interfere with the provision of property assets, including homes, logistics hubs, shopping centres, schools, hospitals, offices, and data centres, which are essential for the desirability and prosperity of cities. He also highlighted the potential impact on housing supply and affordability.
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“The government’s 2029 1.2 million home target, productivity payments to boost state and territory housing run rates, the passage of the HAFF and sensible tax changes to promote build-to-rent get a gold star,” he said. “Unfortunately the bill before this committee has the potential to interfere with much of that good work, to render those targets almost impossible.”
Problems with the current bill
Zorbas outlined five specific issues with the current bill, including the effective date, development project feasibility, violation of the "equity" principle, lack of appropriate access to third-party debt deductions, and the creation of uncertainty and compliance obligations.
Next steps
“We remain committed to working with Treasury, this committee and the Senate, to fix the bill’s flaws in a specific and targeted manner,” Zorbas said. “We commend to this committee the amendments set out in our written submission. They will improve the bill and ensure that it appropriately addresses integrity risks, facilitates standard commercial lending arrangements in the property sector and avoids contributing to Australia’s housing affordability crisis.
“Even if this were to pass unamended we will continue to demonstrate the negative impacts and champion a positive environment for investment in our cities,” he said.
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