South Australia’s competitive tax regime is set to attract astute commercial property investors

SOUTH Australia is set to become the most competitive tax jurisdiction for commercial investment in Australia according to Collier’s International’s latest Radar research.

The boast is prompted by the introduction, on July 1, of the state government’s second stamp duty reform which will come into effect as part of comprehensive legislation aiming to make the state’s commercial property market more competitive.

The first cut came into effect on January 1, last year, with stamp duty set to be completely abolished for commercial property on July 1, 2018.

The projected outcome will see transaction costs lowered, removing any disincentive to trade assets and in turn encouraging investors to trade assets more freely, leading to an increase in transactions in the short to medium term.

Colliers director of investments services, Oliver Totani, said the savings to be made with this stamp duty cut are substantial.

“For each $1 million investment made, the savings will be $18,125 post July 1,” he said.

However, the Radar report says the pending cut has stalled commercial property market activity during the first half of this year, with transaction volumes significantly lower than average as buyers appear to wait for July 1 to buy.

Current sales volumes for properties valued at more than $5 million, have seen $111 million of assets change hands in the six months to June 2017, compared to $523 million in the second half of 2016 and $229 million in first half of 2016.

“It would seem the impending cut in stamp duty is delaying the decision to purchase,” Mr Totani said.

“We are seeing increased inquiry in the Adelaide market from a range of investors but many are holding off on committing until post June 30, when the next step down in stamp duty becomes effective.

“We are currently holding several assets back from the market so we can ensure buyers have no risk in receiving the cost savings.”

Colliers associate director for Research, Kate Gray, said an increase in activity was expected for the second half of 2017.

“There seems to be less listings coming to the market during the past few weeks, with many vendors holding off until the next cut of stamp duty kick in,” she said.

“We expect there to be a similar trend in the lead up to the next cut in stamp duty, with purchasers holding off on decisions until July 2018.”

Ms Gray said the savings were about $18,000 per $1 million dollars spent at each interval of reforms, generating significant incentive to wait until the cuts were effective.

“That said, although there is an incentive for purchasers to wait, the increase in the buyer pool post the cut could push property prices up,” she said.

Mr Totani said the Adelaide commercial property market offered exceptional value for investors when compared to Sydney and Melbourne.

“There is growing interest from institutional, offshore and eastern-seaboard investors looking for yield margins, and we expect that this reduction in transaction costs will provide further assistance in widening the gap between Adelaide and Sydney or Melbourne,” he said.

Daniel Gannon, executive director of the

Property Council SA said that a delay in abolishing the final tranche of stamp duty until July 2018 could risk transactional activity.

“The State Government made a courageous decision in 2015 to signal the abolition of commercial stamp duty over a three year period,” Mr Gannon said. said.

“But one unintended consequence with this plan was a handbrake on transactions and buyer behaviours,” he said.

“South Australia’s economic indicators make for sober reading at the moment, which means our policy-makers need to pull strategic levers to deliver economic outputs.

While stamp duty abolition isn’t cheap, it adds so much to our investment story and therefore our attractiveness as a destination.”