REAL ESTATE INVESTMENT ALERT NO. 3

REAL ESTATE INVESTMENT ALERT NO. 3

Whole of transaction solution

Further to our goal of assisting investors reduce the stress involved in their investment in Australian property, we have developed relationships with advisers who can work with such investors on all aspects of the transaction. In other words, together with our contacts, we can (if requested by our clients) provide a whole of transaction solution to investors.

From accountants, lawyers and tax advisers to financiers and project managers, we can assist clients with the issues they need or want to address throughout the transaction starting at the very beginning, before they commit to sign any documents, all the way to completion.

Of course, the type of assistance provided is completely upto our client.

Australian Property Investment – Tip for the Unwary No.2

With offshore investment making up approximately 40%* of all investment in Australian non-residential property, it is becoming increasingly common for offshore investors to partner or joint venture (or enter into co-ownership arrangements) with Australian developers and property investors in respect of projects.

There are numerous ways in which such parties can structure their investment, with the tax and accounting outcomes being different depending on the structure adopted.

One important matter which needs to be considered is how far progressed the party which initiated the transaction ( Sponsor) is in relation to the project. Ideally, the Sponsor will have secured the relevant site with an option (or possibly a right of first refusal (ROFR)) without having yet exercised the option or ROFR. This will provide an opportunity for the both investors to determine the most appropriate joint venture or co-ownership structure (including the entities they will use to make their investment in the structure) and finalise the same.

Subject to the terms of the option or ROFR, once finalised the joint venture or co-ownership entity should be able to be nominated to exercise the option or ROFR and acquire the property.

If the Sponsor has already acquired the property prior to the other party ( Investor) making its investment, significant stamp duty consequences may arise for the Investor in acquiring its interest in the land owning entity or the land itself. This will depend on the percentage of the ownership interest to be acquired, the nature of the investment to be made and the value of the property. Generally, stamp duty is a cost borne by the purchaser.

Unless the Investor is aware of the above, it may not realise the potentially significant cost it will suffer as a result of entering into the transaction. Once such cost is identified, the Investor may need to reconsider the nature of its investment, which may not be acceptable to the Sponsor. This can lead to delays, costs and stress with possible results including that the returns to the Investor are likely to be less than originally anticipated or the transaction does not proceed.

TIP: Always inquire as early as possible as to the basis on which the Sponsor has secured its entitlement to acquire the project land.


We trust you have found the above information useful and hope it will assist you in current and future transactions. If that is the case, please feel free to share this email with your business network. I welcome your feedback at peter@peterfaludiconsulting.com.au

Regards
Peter

The comments made in this Alert do not constitute the provision of any legal, tax or accounting advice by Peter Faludi Consulting or any Director or employee thereof and therefore you should not rely on this Alert in making any decisions relating to present or future transactions in which you are involved. We strongly recommend that you seek legal, tax and/or accounting advice (as relevant) in relation to the same.

* As stated in the ACIL Allen Consulting Report to The Property Council of Australia -"Benefits of Foreign Investment in Real Estate" dated 22 May 2017.

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