The result of this frenetic activity is plummeting cap rates across all real estate sectors and a more lateral approach to the use of buildings – B grade office is now top class residential opportunities. An off market acquisition opportunity rarely if ever exists in the current market due to the high levels of activity.
Also note the disconnect between asset prices and the leasing market. Possibly this disconnect is no longer of the same concern as in past property surges because of the differing identity of investors – foreign pension funds and sovereign wealth funds would typically have a longer investment horizon than investors of the past.
Investors who are successful in acquiring property must ensure they have properly considered all tax aspects if they are to achieve acceptable after tax returns given rising asset prices.
For foreign investors, managed investment trust (MIT) status is an absolute imperative if it is possible. The 15 percent tax rate increases ability to formulate a competitive price for buildings and will be further enhanced to the extent the 10 percent tax rate becomes available for green buildings where construction has commenced on or after 1 July 2012.
Ambiguities remain within the law. These ambiguities sometimes create uncertainty and other times impose additional obligations which, presumably unintentionally, will lead to inefficiencies. Treasury is currently considering proposals to further streamline and clarify the operation of the MIT rules, which is most welcome given the importance of this tax initiative towards making Australia an attractive destination for foreign capital.