Strict new planning rules designed to curb breakneck development in Melbourne's CBD could serve as a major deterrent to foreign investors, severely undermining the Victorian capital's ability to compete on an international playing field.

While prominent members of the property and architecture sectors have lauded the overall direction of the Andrews government’s latest batch of planning laws, some say the plot ratio restrictions in tandem with increased stamp duty for overseas buyers will severe diminish Melbourne’s lustre in the eyes of foreign capital.

“I think that from a big picture perspective it’s a step in the right direction, and provides clarity on key issues that were really killing sites in the city,” said Craig Yelland, director of Plus Architecture. “Two of the big issues are that you’re now permitted to build on boundary if context permits, while wind speeds used are the average measure throughout the year, so we’re not just designing for extremely windy days.”

The decision to restrict plot ratios, however, will be a major burden upon current owners of sites in the Melbourne CBD, and could serve as a potential deterrent to prospective investors in the city’s future development.

“The reduction in plot ratio has massive negative impact on anyone who owns a site they were hoping to develop, or anybody that owns a site they’re hoping to sell to a developer – their land value just went down considerably,” said Yelland.

He added that the plot ratio reduction has already sent negative signals to investors when it comes to the stability of Melbourne’s regulatory environment and planning policies.

“It’s already impacted Melbourne’s appeal as an investment destination. After just a sniff of it, clients were already withdrawing their bids for sites on the day –  multiple clients have pulled out from major sites in the city,” he noted. “Any time there’s a change for the negative, foreign investors look at it and say – well this has just changed, what’s going to be the next change?

“It reduces the confidence that investors have that we’re in a stable planning environment, if every year there’s a new set of rules which make it harder.”

Another change which some say will further dim Melbourne’s lustre in the eyes of foreign investors will be increases to the stamp duty for overseas buyers.

“The additional stamp duty charges snuck in are also having a massive impact,” said Yelland. “The seven per cent additional charge on foreign purchasers whenever they want to buy an apartment or site will have a profound effect on development.

“It’s not something that the developers can afford, the purchasers will get spooked, so now everyone’s worried Melbourne becoming unattractive to foreign investors, and their ability to sell offshore as a result.”

Ben Anderson, founder and managing director of the Future Estate Group, notes that these the changes could have serious consequences for Melbourne given the importance of the property sector to the state economy as well as increasing competition from other major cities for international development capital.

“The property industry as a component of the Victorian government’s tax base is nearly 50 per cent,” he said. “We’re the biggest industry and the most important in terms of employment, particularly when you consider the flow on effects of indirect jobs for people like consultants and engineers.

“When it comes to development capital, inbound developers seeking to invest in our economy, which creates investment, jobs and stimulates the economy.

“Obviously if you restrict development in a way that’s perceived to be less attractive for in bound developers, the less competitive and less likely you’ll be to attract that capital and the attached benefits.”

Stymieing comparative advantages at this juncture could be particularly bad for Melbourne given rising competition for international development capital from other major cities within Australia.

“Melbourne has become a global city that’s consistently ranked one of the most liveable in the world,” said Anderson. “It’s got really high living standards, great health and education, so there are many reasons why a developer would want expand into Australia via Melbourne.

“You can only trade on that for so long, however, because other cities are becoming very competitive and making headway into the market, in particular Sydney and Brisbane.

“Combining floor space ratio restrictions with the implementation of those taxes on foreign purchases could significantly reduce our competitiveness and appeal as an investment destination.”