Infrastructure and housing focus welcomed but opportunity missed to boost foreign investment
The 2018 WA Budget includes a welcome boost to infrastructure funding and planning for infill housing but an opportunity was missed to attract much needed foreign investment with the increase in the proposed foreign stamp duty surcharge.
The commitments in the Budget to fund the METRONET precincts plan in Perth and the associated METRONET housing package is welcomed. This is important for the station precincts to be established and to attract private investment.
Linking the government’s public housing investment plan with METRONET is a smart move. This answers questions from industry about how some of the more marginal station precincts can be established with a diversity of housing options.
There is a $15 million funding commitment to establish Infrastructure WA, which is also welcomed. Infrastructure WA is urgently needed to guide WA’s $6.2 billion infrastructure program.
In regional WA the $233 million funding commitment for the Bunbury Outer Ring Road will ease congestion and enable growth in the greater Bunbury region to be properly planned, and establish Bunbury as WA’s second capital city.
It was also pleasing that the WA Government kept its commitment not to increase land taxes and stamp duty for local buyers. This was important to maintain confidence in WA’s property markets, which are showing signs of emerging from a long slump.
However the Government missed an important opportunity in the Budget to incentivise the market recovery.
WA has the lowest proportion of foreign investment in residential property in Australia and the opportunity was missed to attract more foreign investment by holding off on the increase in the stamp duty surcharge for foreigners to 7% in the Budget.
The Budget also missed an opportunity to incentivise right-sizing housing choices for seniors through targeted stamp duty relief.
Overall this is a steady budget with a strong infrastructure focus to encourage private investment in the METRONET precincts plan in Perth and key regional centres. This is under-pinned by a welcome commitment to reduce the Budget deficit and bringing down State debt.
Central to the Budget’s success in achieving the bold infrastructure objectives will be a further commitment to progress WA’s asset sale program, including the sale of Landgate and the TAB which are identified in the Budget.
The Budget’s success will largely depend on a strong increase in forecast state economic growth to 3.25% in 2018-19, and a return to long-term average annual population growth rate of 1.8% by 2020-21.
These are ambitious forecasts which will need WA property markets to continue to recover strongly. Foreign investment in WA will be important in the state’s recovery, which highlights the disappointment with the increase in foreign buyer stamp duty surcharge announced today.
Key Economic Data WA 2018-19
- State Economic Growth: 3.25%
- Population Growth: 1.2%
- Inflation: 1.5%
- Unemployment: 5.75%
- Dwelling Investment: 4.75%
- Business Investment: -14%
- Median House Price: 1.4%
- Net Debt ($b): $25.9
- Net Operating Balance ($b): -$0.9
After contracting by 2.7% in 2016-17, the WA economy, is expected to grow by 2.5% in 2017-18 and a further 3.25% in 2018-19. Growth will be supported by a further expansion in export volumes, consistent with an economy that is firmly within the production phase of the resource investment cycle.
Over the past five years, the mining sector’s share of nominal GSP has eased while the share of the services sector has increased. More recently, a strengthening in employment growth in 2017-18 has been driven by a diverse range of industries, many of which are in the non-resource sector of the economy. A total of nearly 50,000 jobs are expected to be created over 2017-18 and 2018-19.
Population growth is expected to strengthen steadily from 1.0% in 2018 to 2.0% in 2021-22.
The Budget is forecasting a return to positive dwelling investment of 4.75% in 2018-19 and to continue to grow steadily. Business investment however, is not expected to return to growth until 2019-20.
Property Sector Take-Outs:
- $725 million METRONET boost to WA's $6.2 billion infrastructure program
- No increase in land tax rates and stamp duty rates for local buyers
- Funding commitment for Infrastructure WA
- New State housing package to deliver 1,390 new homes with private sector involvement
- Proposed Foreign Buyers Surcharge on residential property to increase from 4% to 7% to apply from 1 Jan 2019
Foreign Buyers Surcharge Increase
The rate of the proposed Foreign Buyers Surcharge will increase from 4% to 7%,raising an estimated additional $50 million over the period 2018-19 to 2021-22. The increase brings the total estimated revenue from the surcharge to $123 million over this period.
The surcharge will apply to the dutiable value of residential property purchased by foreign individuals and entities in Western Australia from 1 January 2019.
Residential developments of 10 or more properties will be exempt of the surcharge.
In 2018-19, the State’s investment in economic and social infrastructure is forecast to total $6.2 billion, an increase of $725 million on the estimated outturn for 2017-18.
Infrastructure highlights in the Budget:
- $750 million over the forward estimates period;
- $233 million for the Bunbury Outer Ring Road;
- $76 million for land acquisition for new primary and secondary schools, Yanchep Secondary College Stage 2 and critical maintenance programs;
- $41 million in capital expenditure for the METRONET Social and Affordable Housing and Jobs Package. The balance of the package, which is expected to deliver 1,390 new homes, comprises $143 million in operating expenditure by the State and $209 million of private sector investment; and
- Infrastructure WA will be established at a cost of $15.3 million and will ensure coordinated infrastructure delivery across Western Australia’s suburbs and towns.
METRONET - Plan Update
In last year’s Budget, investment of $1.8 billion over the period 2017-18 to 2024-25 was approved for METRONET projects, including the Thornlie-Cockburn Link and the Yanchep Rail Extension.
This Budget recognises that various METRONET projects are still under development, with business cases currently being prepared for projects such as the Morley-Ellenbrook rail line, the Midland Station project and extension of the Armadale line to Byford.
Accordingly, a provision for additional asset investment of $1.1 billion over the period 2019-20 to 2024-25 has been approved for METRONET, including $750 million over the forward estimates period. The provision will remain until such time that Government makes a formal investment decision to allocate the project to the relevant delivery agency’s asset investment program.
Of the $2.9 billion investment in METRONET (on top of the $1.9 billion investment in the Forrestfield-Airport Link), $2.2 billion is within the current forward estimates period.
METRONET - Land sales
As an integrated land and transport plan, METRONET not only involves the construction of rail and roads, but better management of land planning and delivery. The 2018-19 Budget includes additional land sales revenue of $200 million over the period to 2021-22, reducing the need for borrowings while also ensuring alignment with METRONET’s land use planning outcomes.
The Department of Communities and LandCorp will reprioritise their existing land acquisition budgets (by $70 million and $30 million respectively) to purchase surplus Western Australian Planning Commission (WAPC) land for future development. The $100 million land sales revenue will flow into the Metropolitan Region Improvement Fund and the WAPC will use these funds to undertake improvements on WAPC-owned land as part of the Yanchep Rail Extension project.
Recognising that $100 million of the Yanchep Rail Extension project’s asset investment will be undertaken by the WAPC, the 2018-19 Budget reflects an equivalent transfer of asset investment from the Public Transport Authority.
The remaining $100 million of new land sales proceeds has been reflected as a global provision and will consist of sales by the WAPC, Main Roads and the Public Transport Authority.
The existing $104.8 million in land sales revenue (included in the 2017-18 Budget) will be met through the sale of Crown land at West Ellenbrook. Land will be sold to the Department of Communities and a joint venture partner in 2020-21 and 2021-22 (with an equivalent reduction in planned purchases from the private sector). The land will later be used for delivery of affordable housing and construction development that stimulates jobs while later taking advantage of the future rail infrastructure in the area.