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Taxes and Fees too much for developers

Tuesday, 06th July 2010

A leading Sydney real estate figure in Greater Western Sydney, John Starr forecasts that land in NSW will remain sterilised in 2010 and beyond unless "crippling" fees and taxes are re-addressed by councils and government.

John Starr, founder of Starr Partners – Greater Western Sydney’s largest and longest-running real estate franchise – says, “Thousands of hectares have been released in and around Western Sydney, but developers have done nothing to move forward because they can’t afford the fees and taxes. In addition hundreds of derelict DA approved sites remain on hold as developers can’t get finance. This is the biggest issue affecting the NSW property market.”
According to the Australian Government National Housing Supply Council, the housing shortfall is nearing 250,000 too few homes, and this is increasing by over ten per cent each year.
Despite new stamp duty concessions and caps to council contributions, John says prices and availability won’t improve for home buyers until developers can afford to return to the market.
“Greater Western Sydney is the development region of the future, and attracts Sydney’s largest concentration of first home buyers. However, high council and government fees for developers are pushing prices for new housing well  above existing stock, making it commercially unfeasible for developers to enter, or remain in, the market,” says John.
John says current planning approval and development assessment processes add time, uncertainty and costs to the development process, essentially sterilising NSW housing supply.
“The irony of the situation is that the State Government and authorities introduced development contributions, fees and expenses as an income stream, based on the misperception that developers are making big returns and profits.
This is not the case, and the fees charged to developers have essentially sterilised NSW.”
John says developers must foot the bill for major infrastructure and service upgrades such as water, electricity, sewerage, gas and civil works, often having to compensate for poorly planned existing facilities. Combined with council contributions and fees of up to $20,000, this can add up to $35,000 in expenses per lot, not including land holding costs and interest, at a time when many developers are unable to secure finance from the banks.
Reports from Starr Partners agents across Western Sydney highlight the problems with the current system.
Starr Partners Merrylands Principal Phil Starr says homebuyers and investors are looking to purchase in Western Sydney but the stock shortage is limiting opportunities.
“We are experiencing strong demand for properties, however there is simply not enough available stock to meet buyer and tenant demand,” said Mr Starr.
“The key to addressing the stock shortage is more development activity; however the banks remain unwilling to open up finance to developers. Coming out of the GFC, developers are reluctant or unable to resume activity meaning there are not enough properties to meet the demand,” he says.
According to John, lenders generally expect profit margins of around 20 per cent on a new development. However, the costs of purchasing land and then developing a home means such profits are unrealistic and this is adding to the banks’ reluctance to open up finance to developers and the ongoing housing shortage. Continuing restrictions on planning mean there is very little vacant land available to developers, which is driving costs higher and supply lower.
John says the planning system is processing 20 – 30 per cent fewer properties compared to three years ago, and that it can take up to five years to approve a new development from a Greenfield site.“The worst consequence is that rents will also escalate. We are heading towards a need for public housing unless there is significant supply-side reform,” says John.

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