Queensland is the second largest State in Australia based on land mass and has the third largest population. On average, around 10,000 people a year are moving to the Sunshine State, with over 20 million people a year from interstate and overseas origins choosing to visit the tropical climate as a preferred tourist destination. At its peak growth rate in 2007, approximately 78,000 people a year were making the move to call Queensland home. Accordingly, property development in Queensland has seen exponential growth in the last two decades in order to keep up with its changing population and to accommodate the impact of the growing tourism industry. Recent changes to Queensland property laws in the last five years, along with increased government regulation on foreign investment, presents the question, “what is the future of property development in Queensland for both domestic and foreign investors and what range of property development projects are we likely to see more of in the years to come?”.
The Impact of Changes in Queensland Property Laws
In 2014, changes to the Body Corporate and Community Management Act 1997 (BCCM) and the Property Law Act 1974 (PLA) saw an increase in allowable deposits on off-the-plan contracts being held at 20 per cent of the purchase price, instead of the previous 10% threshold, without triggering the instalment contract provisions that had presented numerous issues for developers in the past. This change provided great benefit and further security to developers engaging in larger scale project development and off-the-plan sales and has arguably given Queensland an edge compared to other domestic markets. Another welcome innovation for developers under Queensland legislation in recent years was to allow them to nominate a five-and-a-half year sunset date for settlement under off-the-plan agreements, removing the need to have a statutory regulation passed to extend the previous three-and-a-half year sunset date which had proved more difficult to manage.
The Rise of Residential Apartments and Mixed Use Buildings in Queensland
The benefit of recent changes to Queensland property laws, and in particular off-the-plan regulations, has seen larger Australian and international developers becoming more attracted to undertaking projects in the Queensland market. This has most recently been evidenced by the announcement of Melbourne based Bensons Property Group undertaking development of a $230 million dollar apartment building planned and approved for Chevron Island in Surfers Paradise, and Orion International Group gaining approval from the Gold Coast City Council to forge ahead with the impressive $1.2 billion “Orion Towers” project which includes two mixed use sky scrapers; one of which will be the tallest building in the southern hemisphere upon completion. Both projects will provide significant opportunity for both residential and commercial property investors at one of the most popular tourist destinations in Queensland.
Brisbane is also seeing an apartment boom in recent years with around 10,000 apartments currently under construction, another 15,000 said to already be approved by the Brisbane City Council, and the same amount still in the application process and awaiting approval. Higher property prices in Sydney and Melbourne are believed to be contributing to the appeal for further development and investment in Queensland, with properties in the Sunshine State still estimated to be anywhere from 35% to 50% cheaper than acquisition of a similar property in Sydney or Melbourne.
It is most certain that the Queensland market will hit a saturation point of sorts when it comes to demand and supply for units, apartment and townhouses, so it is likely we will see this kind of development slow down at some point in the next 5 to 10 years. Queensland has, however, had a lot of catching up to do in the property development space, in particular following the global financial crisis where there were a number of years under which no new construction had taken place. In the coming years there should continue to be substantial opportunities for both corporate and individual, local and foreign, investors in Queensland.
The Impact of Increased Regulation on Foreign Investors
2016 saw the Australian banking sector significantly tighten its lending parameters pertaining to foreign investors which has resulted in a notable slowing of the high paced turnover of foreign acquisitions and investment seen in the Queensland property market, and the Australian sector in general, when compared to previous years.
Foreign investors have also been impacted more recently by the Foreign Resident Capital Gains Tax withholding regime and changes effective from 1 July 2017. The changes apply to disposals of real property where the contract price is now $750,000 and above, previously $2 million and above, and requires vendors selling their property to obtain a clearance certificate from the Australian Taxation Office prior to settlement to ensure the purchaser doesn’t have to withhold the CGT amount at a rate of 12.5%; a 25 percent increase on the previous rate of 10%. The regulations under this regime have been introduced to assist in the collection of foreign resident tax liabilities which has previously posed an issue for the Australian Government and, whilst the initiative has clear benefits in this regard, it is certain to have an impact on foreign investors and the acquisition and disposal of real property in Queensland, particularly in conjunction with the tightening of foreign lending criteria within the finance sector.
The New Housing Estates Gaining Momentum in Queensland
An interesting area of property development in Queensland which is gaining some momentum in recent years is the area of manufactured homes estates. Manufactured homes estates, residential parks and associated lifestyle resorts and villages are governed by the Manufactured Homes (Residential Parks) Act 2003 and are now gaining some popularity in the Queensland sector, particularly with investors over the age of 55, otherwise known as the baby boomer population.
Manufactured homes are an alternative to real property investment and are offered in residential parks and villages, set up predominantly for retirement and lifestyle community living, whereby the owner of the development retains the legal title to the land and residents purchase their individual homes within the estate as personal property, along with a form of leasehold interest whereby a weekly rent amount is paid for the right to reside in the manufactured home on that land whilst enjoying exclusive access to and the benefit of a number of extensive resort style community facilities under license, which are targeted at providing enhanced lifestyle activities on the home owners doorstep. Unlike retirement villages, there are no onerous exit fees imposed on the manufactured homes investor and the obligations on the owners of these estates, and on the residents purchasing the individual homes, are well regulated under the applicable legislation, providing further surety to the astute investor. Purchasers of manufactured homes also enjoy exemption from stamp duty being payable on the transaction, offering another welcomed relief for investors when considering this form of property investment.
Whilst manufactured homes estates are predominantly targeted at older Australians as a desirable option in the retirement years, housing affordability concerns are now seeing the topic of manufactured homes developments being considered for broader application. For investors and operators of manufactured homes estates there is plenty to be excited about, with capital growth in the real property value of the land in the estate, and on-going returns gleaned from the weekly rents applying to each individual home. In a number of instances the weekly rent payable by a resident may also be bolstered by government rental assistance depending on the resident’s individual circumstances following assessment.
Manufactured homes estates and lifestyle resorts are sure to be an interesting area of development in Queensland in the years to come; providing further opportunities for property developers looking to expand their portfolio and for individual investors looking for an alternative to traditional real property investment.
The Future of Property Development in Queensland
Queensland property legislation and associated regulations have certainly adapted in recent years and provided some beneficial reforms whilst still maintaining one of the more effectively regulated regimes in Australia. Local and foreign investors are sure to gain some long term and short term benefits from engaging in the Queensland market moving forward, and as always buyers should be encouraged to obtain the appropriate financial and legal advice prior to entering into an agreement for the acquisition of property of any nature in Queensland.
In conclusion, what’s clear is that property development in Queensland is still evolving and maturing and will most certainly continue to be driven by demand from the growing population and the blossoming tourism industry; watch this space!
By Ruth Nean; Associate of MBA Lawyers, Varsity Lakes, Queensland, August 2017