The Government's Federal Budget proposal to double the final withholding tax rate (WHT) for foreign property investors will cast a shadow of doubt over Australia's status as a prime investment destination, according to the Trust Company (Trust).
From 1 July 2012, the managed investment trust (MIT) rate will increase from 7.5 per cent to 15 per cent under the Federal Government's budget proposal.
According to Trust, Australia's attractive WHT rate, strong Australian economy, proximity to Asia and lack of property investment alternatives in the South East Asian region have led to strong levels of foreign investment in Australian property.
According to Colliers International research, foreign investment in Australian commercial property markets increased from $1.2b in 2008 to $5.5b in 2011 after the Government lowered the WHT rate to 7.5 per cent in 2007/08, Trust stated.
Head of corporate client services for Trust Andrew Cannane said Australia's lower WHT rates under the MIT rules have been a driver of foreign investment – albeit, not the only one. He said changing the rate would undermine the confidence of foreign investors accustomed to a regionally competitive tax regime.
Trust has dealt with regional players who buy asset portfolios, often with a large proportion in Australia, to be repackaged and listed on a foreign stock exchange, Cannane said.
Trust expects Real Estate Investment Trust (REIT) sponsors to determine which regional stock exchange will give them the most favourable platform and proposition to list their REIT on that exchange in the future, he said.
Investors sought Australian property for a host of reasons, including the availability of well-leased quality stock, gross domestic product growth, and commercial leases indexed to inflation indexation, Cannane said.
Australia's structural infrastructure integrity and adherence to law – particularly property rights – transparency and stable government, place the country ahead of regional competitors in the property market, he said.
