Page 1985 - Week 06 - Wednesday, 25 June 2008

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requirement does not seem to me to be a particularly onerous condition and, given the importance of a property purchase and those who are most likely to avail themselves of this scheme, I would expect that most land rent tenants would be eager to attend the course even if it were not compulsory.

The land rent is not a normal rental payment under an ordinary lease contract. Rather, the bill structures the rent payable on land under the scheme as analogous to rates and charges. Clause 6 of the bill provides that the Land Rent Act is a tax law under the Taxation Administration Act 1999. My understanding, from briefings with officials, is that this is done for administrative reasons, to ensure that the privacy and enforcement safeguards in the tax law apply to the land rent scheme.

This will ensure that tenant income details, which are used to calculate the rate of land rent, are protected under the ordinary provisions relating to tax law. It will also ensure that tenants who are in default of their payments will be subject to the same safeguards and processes for recovery. This seems to me to be a sensible means of administering land rent payments. In the unlikely event that a tenant is unable or unwilling to pay land rent due, they will probably also be in default on their rates and charges; so it seems sensible that these should be administered together.

It is useful to compare the situation of a person who takes up the land rent scheme to the situation of a normal buyer of land who purchases the land under a home loan. Such a buyer would pay the prevailing market rate of interest on home loans but would be the owner of the land and hence would be entitled to the capital gains on the land. Since the market rate on home loans is substantially higher than the two per cent or four per cent land rent levels, there is no doubt that the land rent scheme is cheaper than an outright purchase. The scheme essentially allows the buyer to straddle the traditional line between buying and renting and become a partial buyer and a partial renter. This dampens the normal risks and rewards of renting and the normal risks and rewards of property ownership.

The decision, of course, that is facing a prospective purchaser as to whether to buy the land under a normal market home loan or rent the land under the land rent scheme hinges on whether or not the expected capital gain on the land is worth the additional repayments to purchase the land. By allowing buyers to partially buy their property—that is, buy the building but rent the land—this scheme will allow many Canberrans the option to enter the property market who would not otherwise have had the chance.

I note that the opposition has expressed a number of concerns. The opposition has expressed concern that the scheme could lead buyers to have a greater risk of negative equity or other adverse results. I think that these criticisms are incorrect.

The fact is that land value is highly correlated with the value of buildings so that increases or decreases in the value of a house are likely to be accompanied by corresponding increases or decreases in the value of the land. This means that people under the land rent scheme are actually likely to suffer a diminished effect if there is a market crash or some other event which adversely affects their position.

The flipside of this, of course, is that they are also likely to receive diminished rewards if property values rise substantially or there is some other event that increases

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