Discussion: WA development taxes, fees & charges.

Article from a Perth developer, taken from LinkedIn. Your thoughts?

"Almost on a daily basis the media is saturated with statements by economic pundits and theorists telling the nation that with the rapid decline of the mining boom the one thing standing between the Australian economy and recession is the housing industry, so the oxymoronic fiscal policies strangling the industry and gouging the very last living breath out of it with surreptitious and clandestine financial imposts become totally incomprehensible. Let’s examine some typical cases.

A typical new development for example in the City of Cockburn WA, is now subjected to the following Local Government charges. It starts with a recently introduced Community Levy which is nothing short of a euphemism for a smash and grab tax of around $340,000 on a 100 unit development with absolutely no rational basis or justification for it. In addition there is a development approval charge of $41,000 as well as a charge for the issue of a simple, previously called Building Licence, now retitled Building Permit (a needless cosmetic change which no doubt came at significant tax payers administrative expense) and which costs an additional $175,000. The right to a simple connection to the existing sewer and water mains with no upgrade needed will cost additionally circa $200,000. Calculated on a base of 100 units these costs alone already represent approximately $8000 per unit excluding the usual charges of rates and other local taxes of course. Not to be outdone Western Power are now charging the ridiculous fee of $175,000 for the removal of a transformer from one of our sites. NBN have put developers on notice that a new connection fee of $400 per unit ($40,000 based on a 100 unit development) will apply from hereon.

Stamp duty in WA realistically is around 4 to 5%. The State Government website on stamp duty shows that on a typical investment unit valued at around $600,000 stamp duty will amount to approximately $23,000. What it does not show is the double dipping nature of this tax. Unlike buyers in Victoria for example, in WA a person purchasing an apartment will be subject to stamp duty on the pro-rata value of land and full value of a non-existing building. In Victoria, purchasers contracting to buy apartments off plan and prior to construction are only liable for stamp duty on the proportional value of the land and nothing else as indeed at that point nothing else exists. As construction commences and progresses incoming new purchasers become liable for stamp duty on their proportional value of land and proportional value of the improvements on the date of the contract.

In WA buying a single residential block of land and building a house on it only attracts stamp duty on the value of the land and nothing on the value of the building, clearly an anomalous and significant financial disadvantage for apartment purchasers. In addition of course there is land tax which has just been heavily increased in quantum and scope, and clearly having a profound effect on the investment market, plus other incidental charges such as registration of mortgage fee and a charge for anything else which requires the State’s imprimatur.

At the Federal level there is of course the ubiquitous GST. The tax which was supposed to replace all other taxes will hit a typical unit purchaser for another $60,000. So on a unit which costs around $600,000 in excess of 15% of the purchase price goes to the various tranches of governments and other opportunistic government owned monopolies. We are only scratching the surface of course as all of the economic units which make up the industry like builders, architects, engineers, sales consultants, advertising media and agents etc are also inevitably caught in the sticky gossamer of various levels of Federal, State and Local Government taxation.

For those in authority who wish to listen, this industry is hurting badly and simply cannot go on without serious repercussions. As long as The Reserve Bank restrains significant rises in interest rates the various tranches of government in Australia see the housing industry as politically an easy target (rising prices are directly related to those greedy developers and not politicians so lesser fallout in the popularity stakes) and a soft touch for increased revenue but the law of diminishing returns is now seriously kicking in, particularly in WA, whose economy has been the subject of a severe drubbing from the decline of the mining industry. Developers simply cannot keep passing on these cost increases to purchasers with affordability already a very significant issue in a deteriorating market so the only option for developers is to absorb in part or in total new taxes such as the Community Levy and other such increases. This makes the balance of risk against returns very questionable and at serious risk of falling off a cliff which will result in a significant contraction in the industry. I believe that process is fast incubating with developers shelving projects resulting in fewer developments up for approvals. Against a background of a rising risk profile in negative market sentiment driven mainly by affordability issues developers in WA are either dropping or shelving projects with values in the hundreds of millions of dollars.

State and Local Government must come to realise that the simplistic approach of hitting a particular industry hard to raise revenue is not remotely rational and does not invariably work without corresponding significant industry contraction. We understand that in the current tough economic climate and a budget glowing with red ink there are state revenue issues which need to be addressed but killing the apartment development industry serves no reasonable purpose and should not be a viable option. The State has restructured its royalty income stream with some of the struggling iron ore mining companies, in the interests of affordability and keeping the golden goose of housing in barely survivable good health it might be good forward looking policy to address some of the issues mentioned above. Please consider."

 

Looks to me like it's the way it has always been and will continue to be as long as people keep paying it.

 

The resi/commercial construction industry is the prime industry to help build strong economies. Unfortunately a lot of the construction workers did get lured by the resource construction projects but are now coming back as those projects wind down.

To be honest, it's the fickleness of construction/labour charges which seems to hurt more than govt charges. When a 1m construction project increases 5% due to labour shortages it hurts more than known govt charges which you are aware of when doing due diligence. Whilst I don't like the fairly steep charges for sewer, water and power they are somewhat reasonable and are for actual work.

I haven't heard of that levy at City of Cockburn but it sounds similar to the Public Open Space Levy others have which is to help improve local amenities for those extra 100 households moving in. Justifiable for 100 - certainly, justifiable on duplexes and triplexes that I have seen some councils try - probably not.

I'd love to see the back of stamp duty or for it to be taken down to a reasonable level that makes it easier for people to upgrade homes. People in their early 20s should be looking to apartments and small housing then upgrading as they go along. Instead they are leaping straight into a 4 x 2 because they see how much it will cost later on to move.

The 'hidden' costs are what the end public don't see and when they start their rant on greedy developers they don't actually understand how that profit is eaten into by all those charges. I get called all sorts of colourful names at Council Meetings but the essence is 'greedy developer' because I dare to make a living from this. They see the end product price and the price the land was originally bought for and go 'OMFG' yet fail to account for council, govt, infrastructure, holding costs, tax, GST etc etc.

Ok I think I just went off on a rant but basically I do think that some of those charges are justifiable but I would like to see the back of stamp duty.

 

A well thought out and valued response as per usual @Westminster!

 

cmon it was pure rant but not as bad as the post you were reading on Linkedin where I'd most likely just reply 'suck it up princess'

 

Spoken like a true ranting hard ass

 

If housing affordability is a problem then its easy to see why. It it was riskfree easy money then everyone would be a developer.

Do you mind sharing the name or link to linkedIn?

 

City of Cockburn, for our 3 villa development was $8000. (open space levy)

 

I wonder if they have renamed the open space levy to be called Community Levy? In which case it's not a new Levy and is also justifiable (in their rant they said it was "absolutely no rational basis or justification for it")

 

But Victoria stamp duty is highest in Australia, I think its around 6%.
Stamp duty should be abolished, nasty.

OTP Victoria/Melb, attracts only stamp duty on land, however, as the project progresses, whatever stage you sell determines the amount/stamp duty the buyer pays.

For example I have currently sold 3 townhouses at different stages, so payments are calculated using land val and building progress claims, sqm.. divided by 4
Hope this makes sense.

 

It was posted by Anthony Trevisan from Transcontinental Property Group