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Foreign property investors pay the price

foreign investors

From June 21, following the release of the NSW state budget, foreign property investors will be hit with a 4% stamp duty surcharge on residential property purchases. The NSW government will also introduce a 0.75% land tax surcharge for foreign investors, but that won’t come into effect until 2017. Is this the best move for the state? We get three expert opinions on what the outcome could be  when these changes come into effect.

Ben KingsleyBen Kingsley, Empower Wealth

The NSW government is following the lead of Victoria, which last year imposed a 3% stamp duty on foreign buyers (excluding New Zealanders).  In the latest Victorian budget this rate was increased to 7% of the purchase price from July 1.  In addition, a land tax surcharge also applies to absentee foreign owners – currently it is 0.5% but it will increase to 1.5% from the 2017 land tax year.

My initial reaction is that our two biggest states are trying to maximise tax revenues from the healthy appetite foreigners currently have for the Australian property market.  That said, the governments need to be careful as the momentum in the new apartment market is starting to really slow down and there is a lot of stock yet to be built and sold.  If these foreign buyers decide to pull out of our market, this will impact further on prices for new apartments. According to the latest report from valuers and banks, we are already seeing evidence of valuations that are lower than the purchase price.  So the follow-on effect could be that local owners and investors suffer losses and, worse still, there is a slowdown in the construction sector and employment, when the economy needs it most as we transition from the mining boom.

Combine this with the mass exit of Australian lenders lending to foreigners and confidence in this market sector is seriously going to be shaken.  I know I wouldn’t want to be buying off the plan or about to settle on an off-the-plan apartment at the moment given these serious headwinds.

TerryRyderTerry Ryder, Hotspotting

NSW is one of three states that have lifted taxes and charges on foreign investors, along with Victoria and Queensland. They all claim it will improve affordability by reducing competition with first-home buyers but it will actually do the opposite – and is little more than a cynical cash grab.

The new imposts will deter foreign investors from buying in Australia. I’ve seen reports suggesting foreign investors are already switching attention to other nations with more investor-friendly attitudes. Many of the proposed apartment buildings in the planning stage are relying on foreign investors buying off the plan. If they don’t get sufficient pre-sales, they won’t be able to get finance and the projects won’t go ahead. If foreigners stop buying, many new projects won’t happen.

This means supply will decrease and prices will rise. The best chance for improved affordability –  that is, lower prices –  is an oversupply of apartments in cities like Melbourne and Brisbane, which would push down prices. Deterring foreign investors will therefore make the affordability equation worse.

PatrickBrightPatrick Bright, EPS Property Search

While I welcome the NSW government’s move in this direction, it is acting very much at the 11th hour. Any move that will slow foreign buying is a good move for all Australians, in particular those who are entering  the property market for the  first time  or are investors looking to secure their financial future. There is no question that foreign buyers have had an inflationary effect on the property market, particularly in Melbourne and Sydney (and more recently Brisbane) every year since the federal Labor government relaxed the foreign investor rules in 2008.

Let’s also keep in mind it’s not “foreign investment” – it’s actually “foreign ownership” that is going on. I am not against foreign investment. What I am against is selling off the farm and/ or the city, which is what has been happening and is still happening.

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