The real estate boom in Sydney has officially risen by 73% in the last 5 years whilst our market in the same time has only increased by 5-8% and most of that has occurred in the last 15 months. For the decade prior to that, the Sydney market languished with only a 10% increase overall. In comparison, the Adelaide market had zero growth in the lost decade from 1989 to 1999 but then skyrocketed and produced a nett gain of 150% up until the early part of 2008. In analysis, this means that the Sydney market moved from a factor of 100 in 2002 to finish with a factor of 190 by the end of 2016. Adelaide in comparison moved from a factor of 100 in 1989 to a factor of 250 in 2008. The Adelaide boom was a serious catch-up driven mainly by the last gasp of Baby Boomers investing in property. It was all over by 2009. Sydney was driven by excess demand from China and the effect of that has now ceased due to bank lending practices and Chinese Government controls. Adelaide has outpaced the Sydney market with a simple growth rate of 7.5% over 20 years compared to a Sydney performance of 6% over 15 years. So Premier Jay, we have not been beaten by the eastern seaboard on this one.
In the last 12 months, the residential market in Adelaide increased by 4% but the 3-4 bedroom family home sector has increased by 10% and whilst the supply of stock does not match the underlying demand then you can expect that increase to continue. I have sold 5 properties of this style to young families buying their second homes and in every instance my sale prices have exceeded my valuations, some by as much as 10%. When you get erratic movement of this sort it can sometimes be an indicator of a developing market ready for a rise across the broad spectrum of all property types. This time, however, the market is not being driven by Baby Boomers. We are only talking about a very small portion of the real estate market and for 1 sector to rise by 10% when the overall market is up only 4% then clearly there are property types and locations that are not enjoying any growth at all.
Treasurer, Scott Morrison, argues that property prices are rising because of a lack of supply so he must have been delighted to read in the Melbourne Age on Saturday 18 March the headline “Push To Dump Stamp Duty And Move To Land Tax”. Readers of our Newsletter and Blogs know that the “Dunsford Plan” was first mentioned in March 2013 where I quote “be rid of Land Tax, Stamp Duties, Levies and the like and introduce a single Property Tax based on the Site Value of every Land Title”.
The debate is now on and involves all levels of Government, Australia wide. You can expect the Dunsford Plan to be adopted within 5 years and the consequences on the property markets will be a revelation.
The reluctance of buyers to move houses, particularly Baby Boomers out of oversize family homes into retirement dwellings, is in a large part to do with the huge lumpy payment of Stamp Duty on the transfer. To buy an $800,000 property and sell a lesser valued one has a cost in excess of $50,000. Home owners are now pursuing the tactic of not selling up the existing home but borrowing more against the equity and adding the transfer savings and doing an extension and upgrade. The lower turnover in sales is a worldwide dilemma, even in the U.S. Government property taxes have just got beyond being reasonable and have seriously affected the affordability of people entering into the market. With the elimination of Stamp Duty this will allow the hard-earned savings of First Home Buyers focus on the deposit rather than a non-beneficial payment to the Government. With the abolition of Stamp Duty, Governments can stop giving grants and concessions that never go to the intended beneficiary but instead into the bank account of the vendor. I have examples that prove this fact categorically. The abolition of Stamp Duty in the form of a Land Tax, will allow for a more predictable and certain income stream for the Government than the current system allows. New South Wales and Victoria had Budget surpluses last year based primarily on Stamp Duty from property sales in a boom. When the boom busts, the revenue slumps and the resulting deficits become long term debts.
So, remove Stamp Duty on all property transfers and you will mobilise the market and solve the supply concerns of Treasurer Morrison.
Here’s another idea, Jay
In O’Connell Street, North Adelaide the Le Cornu site, currently owned by Con Makris, presents as a job creation opportunity that the Government should purchase. Con has already declared that the future development opportunities are better elsewhere and he has now moved into Queensland. The Government, through Renewal SA perhaps, should purchase the site and develop it in accord with the approved plans that Makris has now been sitting on for over 2 years. An international hotel group have already indicated interest which would act as a core for the first stage which would obviously incorporate high end apartments and retail outlets. This would be the start of a very exciting and expansive development initiated by the Government to then be followed up by landlords along the strip that would in turn be encouraged to do similar upgrades due to the increase in property values and rents. Suddenly, you have removed a blockage in the O’Connell Street artery that would convert it into the best boulevard in Adelaide as it deserves to be. It would create a couple of thousand permanent jobs and it would eliminate the current dereliction and neglect that exists. It would also complement the fantastic effort and work done with the creation of the new Adelaide Oval and the Riverbank Precinct.
If only we had $160m that was otherwise used to dig a tunnel through a parkland.