The Property Boom – Things to watch in 2021

The Property Boom – Things to watch in 2021

REAL ESTATE FINANCE AND INVESTMENT ALERT

December 2020

The Property Boom – Things to watch in 2021

As the year most of us would like to forget draws to a close, is the stage set for a great 2021?

While many of the regulatory changes made during the year were temporary, some will continue to impact the property market in 2021. In addition, the ongoing reform agenda will raise further questions for property investors as to how to carry on their business.

In this Alert, we discuss some of the 2020 legal changes (actual and proposed) which will impact property investors and developers in 2021 and beyond:

  • The Mandatory Leasing Code Hangover – what it means to investors
  • Development and construction industry reforms to increase costs and change the industry
  • Proposed NSW stamp duty law reforms may not be as good as they seem

The Mandatory Leasing Code Hangover – what it means to investors

Most states/territories have an express end date for the Mandatory Leasing Code relating to commercial and retail leases. In NSW, the Code applicable to retail and non-retail commercial premises ends on 31 December 2020 (although the Code for retail premises may be extended further until March 2021).

You should not assume that the Code will only operate during the COVID-19 period.

For example:

  • NSW has legislated that notwithstanding the set end dates, negotiations under the Code which have not been completed by that date can still be completed after that date. How this will work practically is unclear,
  • Rents which have been deferred must generally be paid back over a period extending beyond lease expiry. If you are owed deferred rent, you may have difficulty recouping such rent once the lease expires.
  • You should not assume that the easing of restrictions and improvement in tenant turnover will necessarily allow you to require pre-COVID rents to be paid again.
  • You are obliged to offer extensions of leases for a term equal to the period of waiver or deferral of rent. The terms of the extension are to be negotiated but the basis on which such negotiation is to occur is not clear.

Once the Code no longer applies commercial and retail tenants may:

  •  prefer shorter lease terms going forward. The AFR recently reported this becoming apparent in relation to retail tenancies, or
  • continue to push for rents tied to turnover with no set increases or base rent.

Such matters are likely to adversely affect the commercial and retail property markets.

If you would like to learn more about these matters please email me at peter@peterfaludiconsulting.com.au.

Development and construction industry reforms to increase costs and change the industry

As you are aware, substantial reforms to the development and construction industry were introduced in NSW in 2020.

These changes are here to stay and will increase the costs of residential and certain mixed use developments.

A draft of the new Design and Building Practitioners Regulation 2020 (released on 17 November 2020) is open for comment until 11 January 2021. Building and design practitioners only have until 1 July 2021 to become compliant with the new requirements.

As these rules are very detailed, there is little time to waste before seeking advice and adjusting to the new rules.

Failure to comply with these rules can lead to hefty fines, disciplinary action and project delays. It can also result in potential liability for breach for up to 10 years after construction work is completed and personal liability for company directors for contraventions.

To minimise such risks, developers and building and design practitioners may prefer to be more involved in non-residential projects going forward.

The NSW Government (in its recent Budget) committed to fund the Office of the Building Commissioner with a further $27m over 4 years to bolster the policing and enforcement of these reforms.

If you would like to learn more about these matters please email me at peter@peterfaludiconsulting.com.au.

Proposed NSW stamp duty law reforms may not be as good as they seem

The proposed changes to taxation of property in NSW (as suggested in the recent NSW Budget) may increase the affordability of property in NSW.

The flexibility offered by the proposal (to choose between paying lump sum transfer duty on a property’s purchase price/improved value or a yearly property tax calculated on the unimproved value) may encourage more purchasing activity.

However, the proposed scheme does currently have some issues which may limit the above benefits.

For example,

  • The decision of a buyer to opt-in to pay the yearly property tax should not have the effect of locking in that method of payment for all future purchasers. This may be a particular concern where property is acquired to be developed into separate lots,
  • If the threshold value, above which there will be no ability to choose the yearly property tax payment method, is too low it may significantly reduce the benefit of the reform,
  • How the yearly property tax is to be calculated on a mixed-use property on one title is unclear,
  • It is also unclear whether the current exemptions from land tax will apply to the new yearly property tax.
  • The question of whether the yearly property tax option would extend to foreign purchasers has not been specifically addressed.
  • Depending on how these matters are finally dealt with, the attractiveness of this initiative (and the benefits to the property market) may be substantially reduced.

The proposal is open for comments until 15 March 2021,

Please feel free to contact me to have a complimentary 20-minute discussion to see how these matters affect you, including your finance arrangements.

WISHING YOU A VERY HAPPY XMAS AND A HEALTHY, HAPPY AND PROSPEROUS 2021. YOU DESERVE IT

We are available to assist you on urgent matters during the Christmas/New Year period. Call me on 0401 500 528.

Kind regards,

Peter

Peter Faludi Consulting

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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.

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