Changes to ‘s GST treatment for developers are needed if the country is to follow America and Britain in pushing greater use of build-to-rent models, building giant Lendlease said.
The company is looking to focus on the build-to-rent sector in its US and London developments in the coming years but the GST in made it uncompetitive for developers compared to building for resale.
Lendlease chief executive Steve McCann flagged ‘s tax issues as a hurdle as he released the company’s results on Monday.
“The units-to-rent sector is one we are entering as it is well established in the US and London. It provides a potential new asset class in our investment segment,” Mr McCann said.
“In it is a possible product for us, but there are tax issues which makes it a challenge. The sector needs government support to make it viable.”
Mr McCann said the residential sector was a “highlight” in the past 12 months. The only strain was the decline in construction margins, which were due to timing issues on projects.
Mr McCann said while the group was not a “barometer” for the residential sector given it operated at the higher-end inner-city markets, there were pockets of oversupply in suburban sectors.
“Residential development was a highlight with a 20 per cent increase in completions to 5769, driven by the delivery of a record 2533 apartments. We have settled about 90 per cent of these apartments to date, with a default rate of less than 1 per cent,” he said.
This included 1087 apartment completions at Darling Square, Sydney, Victoria Harbour and Toorak Park, Melbourne and the Brisbane showgrounds.
“At Barangaroo we still have about four years of building on the apartments – about 775 in total – including remediation of the site and are also looking for capital partners, so there is no urgency.
He said that while Lendlease did not have many overseas buyers there could be some slowdown because of regulatory changes.
Over its global business, Lendlease’s total apartment presales of 4167 units are worth $3.9 billion and 850 units for rent being delivered are worth $500 million.
The group reported a net profit of $758.6 million, up 9 per cent, for the 2017 year, which was revealed by mistake earlier in the month.
???The full-year dividend was 66??, with the second half of 33?? to be paid on September 20. Lendlease never issues earnings forecasts.
Mr McCann said in light of the tragic fire in Grenfell, London, Lendlease had reviewed all its buildings for cladding and fire safety.
“We have not identified or are aware of any of our properties that are unsafe to occupy,” he said. “We look at a building in a holistic way and do regular inspections.”
For construction, the earnings before interest, tax, depreciation and amortisation margin was up ???30 basis points to 2.7 per cent, but EBITDA in its n construction business fell to $201 million from $232 million.
The n margin was affected by performance across a small number of projects and increased bidding activity, while the US reported strong revenues and margins were boosted by successful project close-outs.
Europe is starting to recover from challenging market conditions and the focus in Asia remains on internal pipeline.
Macquarie Equities’ Rob Freeman said while no guidance was provided on 2018, Macquarie was forecasting a full-year 2018 net profit of $789.5 million, up about 3 per cent on 2017.
“This accelerates to 11 per cent growth in 2019 factoring in material profits from Darling Harbour residential,” Mr Freeman said.
“The near-term earnings outlook and ultimately cash-flow outlook for the business remain solid factoring in a high proportion of pre-sold product and an n construction business improving from a low base,” he said.