States’ Uneven Taxes ‘Handbrake’ on Student Living Development

Student accommodation projects in Melbourne and Brisbane are becoming “unfeasible” in the face of heavy-handed taxation and international student caps. While often heralded as a housing supply solution, the sector is facing an uphill battle to get projects out of the ground in states. New data from the Property Council of Australia shows just how uneven the tax settings are across the nation. New South Wales and South Australia are offering a much more attractive proposition for purpose-built student accommodation developers. The Federal Government has capped international student visas to 270,000 for 2025, but there is a disconnect between the Australian and state governments on aspirations to boost PBSA supplies. State taxes on international investors and developers in the PBSA sector are prohibitively high, according to the Property Council of Australia’s Student Accommodation Council executive director Torie Brown. Cost to buy or own a $200-million PBSA building by state State NSW Qld Vic SA Stamp Duty - Base $10,982,000 $11,481,000 $12,980,000 $0 Stamp Duty - Foreign Owner Surcharge $0 $16,000,000 $16,000,000 $0 Land Tax - Base $374,000 $463,000 $482,000 $455,000 Land Tax - Foreign Owner Surcharge $0 $590,000 $800,000 $0 Total in First Year $11,356,000 $28,533,000 $30,262,000 $455,000 Source: Student Accommodation Council, August 2024 The PBSA pipeline has 7770 beds expected to be completed in 2026, which will not alleviate demand in the private market. Brown says the sector is underpinned by foreign capital, making it especially vulnerable to foreign owner taxes. “For a building worth $200 million, owners in Queensland and Victoria pay over $1 million in land tax and foreign owner fees, while in South Australia they pay no foreign owner fees,” Brown says. “To buy a $200-million PBSA in Melbourne, you would pay nearly $30 million in stamp duty, in Queensland $27 million, in New South Wales nearly $11 million and in South Australia, no stamp duty at all. “Investment flows to where it’s most welcome. Jurisdictions that hinder PBSA investment will struggle to support their international student markets.” Despite pressures on the sector, Brown says, the new visa caps are better than expected and will give confidence to investors—but more needed to be done. “The PBSA sector is reliant on a strong, sustainable pipeline of international students to underpin the viability of future projects. International students make up 74 per cent of our residents,” Brown says. “The Australian Government’s ambition to build more PBSA will only work if its state colleagues work with the sector to turbo-charge supply. “The quickest way to do this by 2026 is to ensure students are taking up existing beds and incentivise further accommodation development. “Ridiculously high state taxes on international investors who build PBSA continue to be a handbrake on new development.” ▲ Iglu was approved for an 18-storey mixed-use tower with 300 beds near the University of New South Wales in March. Federal Minister for Education Jason Clare says the new student cap is geared towards universities rather than private vocational providers. “Subject to the bill passing—the overall number of international students starting a course next year will be set at 270,000,” Clare says. “This includes higher education courses and vocational education and training courses. “And what this means is, next year, there will be about the same number of international students starting a course here as there were before the pandemic. “There will be more in our universities and there will be fewer in our private vocational providers.” The minister says the government is implementing a number of reforms to tackle that, including recently shutting down more than 150 dormant, or ghost, colleges—“places that aren’t really operating to provide an education for international students but are really a back door just for people to work here,” according to Clare. Most of these ghost operators work from single office leases or smaller shop fronts. ▲ Brookfield and Citiplan Property filed plans for a 31-storey, 930-bed PBSA tower on Margaret Street, Brisbane in April, 2023. While the state taxes may scare off international investors, it has not for Brookfield, which took a 50 per cent stake in Journal Student Living early last month. The Canadian multinational investment manager is actively expanding its $1-billion student accommodation portfolio across Melbourne and Brisbane This includes 2500 beds across three aproved projects now under construction with Multiplex as head contractor. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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