At Home in the World Market

Published: 21 July 2007.

By Chris Larsen for BRW:

http://www.brw.com.au

Australia is showing all the signs of having a grown-up, international property market.

The listed sector has been the most mature and transparent real estate market globally for years. Australia's real estate investment trust (REIT) market is the world's second largest by volume. Of $140 billion in assets held, more than $50 billion are located overseas. Many in the industry believe that will tip over the halfway mark this year.

Australia's big property developers scour the globe for opportunities, because they're thin on the ground here. Our construction contractors are entrenched in foreign markets. The expertise of Australia's architecture, engineering and property consultancy practices is sought all over the world.

We're playing in the big-kids market now, and we're even on the podium.

It's such a shame the federal government doesn't agree.

In its recent budget, the federal government announced a headline rate of 30 per cent for withholding tax on distributions from Australian managed funds to non-resident investors.

Yes, the legislation to enact this tax fixes what many in the industry say is a cascading complexity of calculations. But the rate is preposterous when benchmarked at an international level. According to the Property Council of Australia, REIT withholding taxes in Canada, France, Germany, the Netherlands, the United Kingdom and the United States are all pegged at 15 per cent. Singapore's rate is 10 per cent, while Japan's rate is 7 per cent.

Both Singapore and Japan have an emergent REIT market, which they are working hard to grow rapidly. The federal government's decision to place Australia's rate at twice the international benchmark not only sweeps away our competitiveness on the international property investment stage, it gives our nearest competitors in the global REIT market a leg up.

Property lobby groups are hammering hard on the federal government's door to have the legislation, which is likely to be enacted by late June, changed. The Real Estate Institute of Australia is appealing for a flat rate of 12.5 per cent. The Property Council is aiming for 15 per cent. It won't happen, but their efforts are to be applauded.

Perhaps the federal government will re-think its policy when Australia loses billions in investment. The only question to ask then will be: how long to claw back our place on the podium?