South Australia to become most competitive tax jurisdiction for commercial property investment in the country

Colliers International examines impact of state government's stamp duty reforms on business from July 1

South Australia is set to become the most competitive tax jurisdiction for commercial investment in Australia, according to Collier’s International’s latest Radar research article.

On July 1, the South Australia government’s second stamp duty reform will come into effect as part of comprehensive legislation to make the state’s commercial property market more competitive. The first cut was made on December 5, 2015, with stamp duty to be completely abolished for certain assets classes on July 1, 2018.

The projected outcome will see transaction costs lowered, removing any disincentive to trade assets and in turn encouraging assets to be traded more freely, leading to an increase in transactions in the medium term.

Colliers International’s director of Investments Services, Oliver Totani, said the savings that could be made with this stamp duty cut were “substantial”.

“For a $1million commercial property, the savings will be $18,125 post July 1,” he said.

However, the Radar report states that the pending cut has stalled commercial property market activity during the first half of 2017, with transaction volumes significantly lower than average as buyers wait for July 1 to purchase.

The current sales volumes for properties more than $5million has seen $111million of assets change hands in the first half, compared to $523million in the second half of 2016 and $229million in first half of 2016.

“The impending cut in stamp duty is delaying the decision to purchase,” Mr Totani said.

“We are seeing increased enquiry in the Adelaide market from a range of investors but many are holding off on signing contracts until post June 30, when the next step down in stamp duty becomes effective.”

There are several major assets which are currently on the market, with transactions expected to conclude in the second half of the year.

“We expect there will be an increase in activity in the second half of 2017,” Colliers International associate director for Research, Kate Gray, said.

“There also seems to be less listings coming to the market during the past few weeks, with many vendors holding off until the next cut of stamp duty kick in. We expect there to be a similar trend in the lead up to the next cut in stamp duty, with purchasers holding off on decisions until July 2018.”

Ms Gray said the savings were about $18,000 per $1million dollars spent at each interval of reforms, generating significant incentive to wait until the cuts were effective.

“That said, although there is an incentive for purchasers to wait, the increase in the buyer pool post the cut could push property prices up,” she said.

Mr Totani said the Adelaide commercial property market offered exceptional value for investors when compared to Sydney and Melbourne.

“There is growing interest from institutional and offshore investors and we expect that this will push up the prices of prime grade assets,” he said.

“We are seeing a two-tiered investment market emerge, where prime grade assets with long leases are in very hot demand so there is some scope for increased capital values for these sort of assets.”

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