Interest rate rise 'further bruises housing market confidence'

FOLLOWING the Reserve Bank's move to lift the interest rate, the Property Council of Australia has urged the Federal Government to fix its capital gains tax and negative gearing legislation.

And it wants the government to withdraw its new taxes on discretionary trusts.

Domain’s preliminary auction results to October 31 recorded clearance rates of 48 per cent in Sydney and 56 per cent in Melbourne, compared with 68 per cent and 63 per cent respectively year on year. 

Property Council chief executive Mike Zorbas said higher borrowing costs were a compounding problem with rising labour and materials costs before the tax hike surprises in the Federal Budget.  

“The Cup Day rate rise stuffs the maths of new housing projects and now more than ever the Albanese government’s tax hikes should be a late scratching,” Zorbas said. 

"The cost of a new home is nearly 40 per cent tax. Fresh Federal tax hikes on investment via trusts, negative gearing and capital gains aren’t helping build the new homes we need. 

“The interest rate hike decision further bruises housing market confidence. 

“Higher financing costs make it even more important that the Albanese government removes avoidable taxes, costs and uncertainty from the delivery of new homes." 

In response to the government’s latest tax legislation, the Property Council called for longer sales periods, recognising genuine build-to-rent investment and preserving legitimate capital losses. 

Zorbas said the discretionary trust changes would create wild risks for small and family-owned development businesses.  

“An apartment still adds to housing supply when it takes longer to sell.

"Extending purchaser eligibility from 24 to 36 months, with a workable trigger at first occupation, would better reflect real-world development and sales cycles.  

“All genuine build-to-rent developments should qualify for the negative gearing activity exemption, whether or not they opt into a separate and optional tax incentive. Government can fix this today. 

“Many family-owned developers use trusts to manage project risk, finance developments and reinvest in future housing.

"The proposed rules risk taxing the same income twice and imposing tax before genuine project losses can be used as well as piling on stamp duty, financing and legal costs.

"Those outcomes leave less capital for the next project,” Zorbas said.