The tax reform saga has some very prominent, influential and at times vocal players. When it comes to accelerated depreciation, miners come to the fore, whereas manufacturers have an abiding interest in re-search and development concessions.
By Richard Gilbert
The tax reform saga has some very prominent, influential and at times vocal players. When it comes to accelerated depreciation, miners come to the fore, whereas manufacturers have an abiding interest in re-search and development concessions.
Farmers have been closely associated with the diesel rebate and fam-ily trusts. Food manufacturers and grocers were in the news when the GST was being thrashed out in the Senate. Retail unit trust investors had front page billing when Treasurer Peter Costello announced in February 99, that they would continue to receive their investment in-come on a pass through basis.
One group that has been seemingly less vocal, but is no less impor-tant is investors in property trusts. A 1999 study prepared by Stokes Partners International for IFSA, the Property Council of Australia and the Shopping Centre Council reveals the sheer size and make-up of the voting population that sits behind those who own property via a managed investment vehicle.
The study found that there is $73 billion in investment property spread across more than 24 million investor accounts. These include Australia’s 6.5 million super fund members, about a million investors in listed property trusts, and more than five million life insurance policyholders.
This widespread ownership is a function of the strong growth in in-vestment in this sector. The volume of funds invested in property has grown by 36 per cent over the past three years, and by more than ten-fold in ten years.
As can be noted from the table below on key investor age profiles, many investors in listed property are nearing or in their retirement years, and they rely more heavily on indirect property holdings than direct shares to build their retirement savings and provide their re-tirement income.
Neither should this group of investors be characterised as being a wealthy elite. The profile of investors in listed property trusts in-clude 160,000 persons whose income is less than $30,000 per annum and a further 250,000 people on between $30,000 and $50,000 per annum.
According to the study, Australians invest in property for four main reasons: income returns, capital growth, inflation hedge and diversi-fication.
Property yields have provided considerably higher yields than cash and fixed interest during recent years of low interest and low infla-tion. Since income returns are sourced from rents, income return from property has been more predictable than dividend income sourced from variable profits.
Investors in listed property also take a long tem view of the market. In comparison to their counterparts in the late 1980s, they have been influenced by income returns rather than a desire to make gains from asset inflation.
Direct ownership of property is seen by many investors as an inferior investment because of the high transaction costs (stamp duty and le-gal fees etc), and less liquidity than property trusts. The need to hold a diverse range assets is the final reason for the popularity of indirect property holdings.
So when final act of the Ralph Review unfolds, this army of indirect property owners will be looking to receive the same treatment as that which is afforded those who invest in property directly. They will want to receive the same benefit from building allowances as a direct investor in property. They will want to maintain the flow through of tax preferred income. If there is to be a relaxation of CGT rules, they will want these to apply to their holdings whether they are held in a property trust or a superannuation fund. It goes without saying that these investors are very return sensitive. Tax changes which af-fect returns will be under the microscope.
Politicians reading the results of this study will no doubt take in a few deep breaths before making those difficult business tax deci-sions.
Richard Gilbert is the deputy chief executive officer of the Invest-ment and Financial Services Association (IFSA).
Key investor age profiles
Age
% owning listed property trusts
% owning shares
55+
34.3
25.9
45-54
22.8
22.9
35-44
22.3
24.8
25-34
14.5
19.7
18-24
6.0
6.7
Source: ASX
