There is a saying in Adelaide that “ïf your business is doing well, don’t tell anyone”. You’re in the minority.
If the consequence of the Defence Contract announcement just reverses the negative sentiments of South Australians then that will be worth billions to the economy. Currently our real estate market is in the doldrums and if the following set of figures doesn’t scare the pants off you then you aren’t wearing any.
In the Real Estate Liftout on Saturday 23rd April the official figures from the Valuer General, Land Services Group for settled residential sales of all categories for the 1Q 2016 were published and compared with the equivalent settlements of 1Q 2015. The good news was that prices in the greater metropolitan area covering 315 suburbs improved by approx 4.5%. The bad news – turnover has dropped catastrophically. The summary of the official figures are as follows:
Number of settled sales for 1Q 2016 was 2,737 compared with settled sales in 1Q 2015 of 4,102.
This 1,365 fewer settlements represents a 33.3% drop in 1 year for the equivalent quarters. Of the 315 suburbs only 43 registered an increase in turnover and most of those increases were piddly. I add the caveat that there will be a slight increase in settlements still to be registered due to late lodgements.
To put this into perspective, during the boom times of 2000-2007, settlements often exceeded 40,000 per annum. The extrapolated figures from the latest figures of 1Q 2016 now mean that residential property settlements are down by 60%. In Budget terms this represents Hundreds of Millions of Dollars.
This abysmal performance is a symptom of the psyche of the South Australian property owner. The last “lost decade” in the 1990’s gave us a clue that South Australian property owners do not panic when times are tough. The latest figures confirm that calm approach and explains why property prices have increased by 4.5% over the last 12 months. Currently the market is under supplied relative to underlying demand. Heaven forbid if there is a sudden surge of sellers because this market does not have the capacity to weather such an onslaught.
These “black holes” will continue whilst the property based taxing system, as it relates to Stamp Duty, is premised on the wrong assumptions. We were warned in the 1990’s but ignored the message because it was glossed over by the “catch up boom” of 2000-2007.
The wrong assumptions are that property prices never fall and turn over never drops.
The proof is on page 42 of the Real Estate Liftout. It must be very clear by now that tax revenue sourced from property must be reset such that those assumptions are no longer the dictate of the outcome. We should also recognise our limitations. Adelaide is a national city not an international city so it does not have the attraction to the off shore investor that has seen the booms in Sydney and to a lesser extent Melbourne. Bad news is dawning in those places.
I iterate a previous blog post to put my resolution. Abolish all property taxes and introduce a new and overarching Property Tax. Add to the Stamp Duty revenue (based on 40,000 residential property settlements) the current revenue generated from Land Tax and the Emergency Services Levy to give a sum total which is then divided by the aggregate of the Site Values of EVERY SINGLE PROPERTY TITLE in the State to generate a rate in the dollar that will then be applied to the individual site value of each title. This “Property Tax”, based on the site value, will have no relationship to turnover or price growth other than annual reviews determined by the Valuer General. The Budget becomes more predictable and transparent and the “black holes” will be eliminated. The benefits to the market are many.
First home buyers will get relief and the Government will make savings by eliminating grants and concessions. A tax on every title eliminates exceptions so every South Australian property owner will contribute toward the Budget outcome, as they should. South Australia would become the first State with no stamp duty on property transactions. As a State we would also be sending a message to Canberra by showing the initiative of improving our financial base rather than the persistent “handout” approach of the past.
To reduce property taxes, the number of Councils in the Inner Metro should be reduced to 4 – one for each point of the compass and Salisbury & Playford should amalgamate. Huge savings through the elimination of common services such as Planning and Admin would flow to the property owner. Community facilities would be retained but excess assets could be sold off and the funds preserved for future infrastructure projects. Builders and developers would benefit with a more transparent, predictable and timely service that would be a bonus to the Building Industry.
We are a Capital City and we have a State with industries and resources that can meet the ideals and expectations of all South Australians. The time is overdue for us all to spread the load more evenly and be prepared to pay more to sustain what we currently enjoy. A balanced Budget lifts confidence, creates jobs and ultimately feeds into the real estate market.
If you want to go fast, go alone. If you want to go far then go together.