Home Property Australia 20,000 new homes in the balance if Thin Cap Bill not fixed

20,000 new homes in the balance if Thin Cap Bill not fixed

  • August 02, 2023
  • by Property Australia
The government has proposed changes to Australia’s Thin Capitalisation regime

 

The Property Council of Australia today flagged investment in tens of thousands of new homes would be put at risk if proposed changes to the Thin Capitalisation legislation currently before the Senate passed without appropriate amendments.  

A thinly capitalised company is one that relies on borrowing money to fund its assets, while having relatively little equity. 

Property Council of Australia Chief Executive Mike Zorbas said if the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 remains unamended, the government can wave goodbye to its ‘one million well-located homes by 2029’ target, a key budget promise. 

“This is a deeply regrettable own goal, but it can be reversed,” Mr Zorbas said. 

“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,” he said.   

In its submission to the Senate Economic Legislation Committee, the Property Council says: 

  • The welcome improvements to the build-to-rent investment regime, announced in the last budget to address the housing supply crisis, will effectively be cancelled out
  • It supports the government’s efforts to close the national housing deficit via the Housing Accord and Housing Australia Future Fund, which is up for renewed debate this week
  • It supports the stated objectives of the Bill in the government’s original policy announcement and Second Reading Speech, which were limited to integrity measures to prevent base erosion, but the draft of the Bill goes well beyond this stated intention
  • The proposed changes significantly disadvantage Australian property trusts compared to our major trading partners, including the US and UK, 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,” Mr Zorbas said. 

“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 the Australia’s housing affordability crisis,” he said. 

Read the Property Council’s submission and proposed amendments to the legislation here