Will the tax on foreign investors also hit locals?
Life is getting more difficult for foreign investors seeking Australian residential property. Following the lead of the Victorian government, which last year imposed a 3% stamp duty surcharge, due to increase to 7% from July 1, on foreign buyers (excluding New Zealanders), NSW announced that, effective from June 21, foreign investors will pay an additional 4% stamp duty on their purchases, plus an extra 0.75% in land tax from 2017.
The Queensland government also announced a 3% stamp duty charge for foreign buyers. While the state governments claim their intentions are to improve housing affordability and supply, the disappointing reality is that imposing further surcharges on foreign buyers is unlikely to address either issue. What it will more likely do, however, is maximise tax revenues by monetising foreigners' healthy appetite for Australian property.
The move by NSW and Queensland comes as momentum in the new apartment market is slowing and there is a lot of stock yet to be built and sold. Keeping in mind that most foreign investors buy off the plan, as foreign investment rules prevent them from buying established properties, it's likely many will pull out of the market. This will certainly have an impact on current prices for new apartments. According to the latest reports from many valuers and banks, we are already seeing evidence of valuations that are lower than purchase prices. This could very well flow on to affect local home buyers and investors.
Foreign investment has a broad effect on our economic development, and it's likely the impact will be felt much more widely than just within property circles. Each year hundreds of billions of dollars flow into Australia, supporting our economy. These polices will eventually cause a slowdown in the construction sector and employment, when the economy needs it most.
Ben Kingsley, chairman of Property Investment Professionals of Australia (PIPA)