Recent changes to Canberra’s commercial property sector have strengthened the case for investors in the ACT market.
Changes to stamp duty on commercial properties and Commonwealth Procurement Laws (CPRs) came into effect on 1 July, 2022.
Commercial properties valued at $1.7 million or less will pay no stamp duty and for those valued above, a flat rate of five per cent will apply.
This increase from $1.6 million allowed investors to save up to $85,000 for purchases, which could significantly impact investors, according to MV Law partner Christine Murray.
“This is a substantial rise in the threshold and could have a considerable impact on investors,” she said.
“It’s really useful for people entering the market at that small commercial level. In purchasing small commercial properties such as shops, small offices and so on – that’s a great concession not to have to pay that stamp duty.”
Ms Murray said those taking the “wait and see” approach might find it was now the right time to explore opportunities.
“There’s no reason to delay – the changes took effect on 1 July and investors might find properties that weren’t as attractive prior to 30 June are worth looking at now.”
As it stands, commercial properties enjoy a land tax-free status that has a material impact on commercial property expenses.
“There’s no land tax payable on commercial land in the ACT, whereas you could pay land tax of up to $7000 a year on land with an average unimproved value of $700,000 if you invest in residential land in the ACT,” Ms Murray said.
“A piece of commercial land valued the same would attract no land tax.”
The Federal Government’s changes to the CPRs on 1 July mandated that Government departments and their agencies source 20 per cent of the value of their annual procurement from small to medium enterprises (SMEs).
In 2020/21, contracts published on AusTender had a combined value of $69.8 billion.
Part of the Government’s “Better Deal for Australian Businesses” pledge, the changes aim to increase the amount of domestically manufactured products and grant SMEs a slice of the $70 billion pie.
The announcement may allow Canberra-based SMEs to expand their commercial operations, increasing commercial lease demand and values for landlords.
While the changes may sweeten the deal, Civium’s Andrew Smith said the Canberra commercial property market wasn’t based on false economy – one of its chief attractions.
“The ACT is a strong market for commercial investment, as it has a very stable economy that doesn’t go through some of the peaks and troughs of other markets,” he said.
“The high proportion of Government workforce in the ACT creates a stable employment environment that transfers into private sector spending and the profitability of the businesses that occupy commercial properties.”
Mr Smith said there had also been a considerable increase in the value of these properties since pre-COVID times.
“The COVID period of the last two years has seen an increase in interest for industrial buildings from owner occupiers,” he said.
“With future land supply in this market very restricted, land and building values have increased significantly in the last two years.
“We have seen circumstances in Hume, where land purchased for $180 per square metres two years ago has been resold at $500 per square metres.”
Ms Murray said the recent changes were in line with the tax reform program the ACT Government has been undertaking for some years.
“The Government has been reducing stamp duty over time and increasing rates,” she said.
“That’s why we’re seeing thresholds increasing – it’s happening slowly over time.”
For further advice on conveyancing and due diligence in relation to commercial property investment and leasing, speak to MV Law.