Master Builders Australia economic forecast
Interest rates – Since the start of 2022, the biggest game changer in Australia is interest rates with rates increasing by 250 basis points since May. It is expected this will go up at least another 100 basis points and possibly even more moving towards 2026.
Material cost – An unanticipated issue that emerged mid-2021 was the substantial rise in building material prices, however the worst is behind us, and prices of construction materials are expected to recover.
Medium and high-rise buildings – There are less people arriving in Australia from overseas (reduced migration due to COVID-19 restrictions), leading to less demand for medium and high-rise buildings. Rental demand continues to be weak; it is expected to recover as migration to Australia returns, and as interest rates recover.
Online services for business
Members discussed the online services provided by the ATO, noting issues particularly regarding registering new and multiple trusts. The ATO will research this matter and come back to the forum with options to address this and modernise their internal processes.
Action item |
Online services for business |
Due date |
Before next forum (6 months) |
Responsibility |
Scott Walker |
Action item details |
Investigate issues raised with ATO online services by members, come back to forum to discuss options to modernise systems. |
Margin scheme valuations consultation
A new Margin Scheme legislative instrument was drafted with professional standards changes, suggests that all valuations should meet these new market valuation requirements, and requires the declaration of the particular valuation method being applied.
The consultation process on this drafting is 4 weeks, closing on the 12 October 2022.
ANZ/Property Council Survey
National economic growth expectations:
- Turned negative in the last quarter due to inflation and interest rates.
Interest rate expectations:
- Majority of respondents expect increases in interest rates.
Retirement living capital growth expectations:
- Given the continuing change in demographics it remains positive.
Critical issue for Federal Government:
- Housing supply and affordability continues to be the most major elected issue for the Federal Government.
COVID-19 impacts:
- continues to have a large negative impact across all states
- hotels, tourism, and leisure impact has decreased significantly since last year
- commercial office continues to grow from the previous quarters but will be driven by how employees will work going forwards, office, home, or hybrid.
Housing Industry Association (HIA) and contractor insights
HIA members are raising issues regarding price increases, labour shortages and greater insolvencies.
In the workforce we are seeing instances of workers being poached by other firms, attracting them with higher salaries. This is elongating construction times, as there are not enough people to fill roles, and requires a return to normal migration for the issue to resolve.
Bank lending is proving challenging for members to get construction loans from banks, if companies cannot project expenses 12 months in advance, banks are unlikely to provide finance.
ATO and industry debt
As a result of COVID-19 ATO debt has increased considerably.
Over the past 6 months the ATO has been escalating procedures and initiating campaigns for more strict payment plans.
The ATO has improved Director penalty notice (DPN) visibility: Once the DPN is issued and the liability sits with taxpayer, they can see it in client services (online service).
Analysis is being undertaken with regards to ‘Doubtfully registered entities’, which are entities, mainly in the GST space, that have no activity, may have obligations, but appear that they have been abandoned. ATO will proactively deregister these entities when these businesses have ceased in their activities.
Action item |
ATO and industry debt |
Due date |
Before next forum (6 months) |
Responsibility |
Anita Challen |
Action item details |
Consider feedback from members regarding visibility of pay as you go liabilities on taxpayers’ accounts |
Australian Securities and Investments Commission
Corporate insolvencies are up 86% compared to last year, but down 7% down from 2019 (base level). Insolvencies are starting to come back to normal levels now.
The landscape has changed. Accountants and lawyers are advising their clients about insolvency practices, changing views on insolvencies. With alternate options to liquidation becoming more popular over recent years.
Australian Securities and Investments Commission (ASIC) is simplifying Form 505 for construction insolvencies. This may add to statistics for construction insolvencies, as ASIC gains a clearer and more accurate picture of the industry.
ASIC is releasing information on insolvencies in 2 sets:
- Series 1 – Data on the first time a company enters a formal insolvency appointment (receiver appointed or enter voluntary administration).
- Series 2 – All insolvencies.
ASIC intends to launch an explanation of their new statistics and automate the releases for efficiency and accuracy.
Retirement villages – construction and operation
The retirement village sector is growing due to the changing age demographic in Australia. The ATO needs to understand more about how retirement villages are constructed and the commercial aspects of their lifecycles, as there is a need to provide guidance on GST and Income tax regarding construction of villages.
The ATO has been consulting with experts to gain a better understanding around what support operators need and what gaps exist in the guidance provided by the ATO.
Action item |
Retirement villages – construction and operation |
Due date |
Before next forum (6 months) |
Responsibility |
All Property and Construction Stakeholder Relationship Forum members |
Action item details |
Members to provide any feedback regarding observed trends in the retirement village industry, including apportionment or new financing arrangements. |
Insolvencies in construction discussion
Large private groups doing a lot of business are very hesitant to go insolvent due to the reputational/goodwill risk.
The property and construction industry is a hostile environment and there is a tendency to quarantine mistakes through use of Special Purpose Vehicles.
Mezzanine finance is not always planned for, but clients might have an equity gap that they need to fill, or else financiers get nervous. This may see clients accepting unfavourable rates.
Capital versus revenue
Web guidance has been drafted regarding the capital versus revenue distinction; shared with members for input and commentary.
The draft guidance is focused on understanding small land subdivisions, whether they are income or capital, the income tax and GST consequences, and other factors to consider.
Action item |
Capital versus revenue |
Due date |
Before next forum (6 months) |
Responsibility |
All Property and Construction Stakeholder Relationship Forum members |
Action item details |
Members to provide any input and commentary regarding the drafted capital versus revenue web guidance. |
Research update
ATO commissioned research into Real Property Influencers is being conducted by RMIT University from August 2022 to February 2023 to understand the key influencers at key decision points within the property development lifecycle enabling the ATO to optimise our interactions with them at various stages of the property development lifecycle.
The cost of GST concessions is being conducted by UNSW from August 2022 to February 2023 to understand the effectiveness of GST concessions available for property transactions, including consideration of whether they are increasing the cost of compliance for entities undertaking property transactions and also regulators.
Key topics discussed at the Property and Construction Stakeholder Relationship Forum 11 October 2022.