Foreign property investors in New South Wales will be hit with higher fees and taxes under proposed changes by the Berejiklian government. The measures are expected to raise nearly $2bn over the next four years to help the state’s struggling first-home buyers.
According to the measures, which were outlined last Thursday, the Foreign Investor Surcharge Duty will be doubled from 4% to 8%, while the annual land tax surcharge on foreign property buyers will rise from 0.75% to 2% annually.
Premier Gladys Berejiklian and Treasurer Dominic Perrottet are due to make an announcement about these changes, which will come into effect on July 1.
Meanwhile, stamp duty is set to be axed for existing and new homes valued up to $650,000. Stamp duty on homes valued up to $800,000 will also be discounted. Currently, the state’s stamp duty exemption is only available for purchases on new properties.
The latest property investment data shows that one in every 10 buyers in NSW is a foreigner. Since its introduction in the 2016-17 federal budget, the Foreign Investor Surcharge Duty has collected $150m from 3,000 foreign buyers.
Challenges Facing Chinese Investors
Despite the many challenges and hurdles placed in their way, Chinese investors remain undaunted when it comes to investing in Australian property.
The value of approved foreign investment rose to about $248bn in 2015-2016, according to a newly released report from the Foreign Investment Review Board (FIRB). This surge was predominantly driven by increased investment in the real estate sector. “China ($47.3 billion) remains our largest source of approved foreign investment, followed by the United States ($31.0 billion),” the FIRB report said.
Two of the biggest challenges affecting Chinese investors right now are the vacancy tax proposed in the federal budget and the state of Chinese investment flows into Australia.
The vacancy tax
According to the recently announced 2017-18 federal budget, foreign property owners who keep their property vacant for at least six months will face a levy of at least $5,000 per annum. The new levy is aimed at ensuring foreign investors are actually contributing to housing supply and aren’t simply offshoring their capital with no intention of occupying or leasing their property.
“About 31% of Chinese buyers are investors not planning to occupy the property they buy. That’s the group potentially most affected by the vacancy tax,” said Sue Jong, chief of operations for Juwai.com, a Chinese language international property website.
“Nearly three-quarters of Chinese buyers are not affected by the proposed vacancy tax because they intend to occupy the property they are buying,” Jong said. “Of course, local Chinese buyers are not targeted by these rules, including recent immigrants, of which there are many.”
Chinese investment flows into Australia
Due to fears of the potentially strangling impact of Beijing’s capital controls and economic reforms, many in Australia worry that Chinese investment is dropping. Juwai.com believes that in 2017, Chinese property investment is likely to be lower than in 2016 but will still be close to its recent record levels. First quarter Chinese buying inquiries via Juwai.com were significantly lower than in the same period in 2016 but were nearly identical to the first quarter of 2015 — which set a record at the time.
Mata, M. (2017). Two major challenges facing Chinese investors. [online] Your Investment Property. Available at: http://www.yourinvestmentpropertymag.com.au/news/two-major-challenges-facing-chinese-investors-237081.aspx [Accessed 9 Jun. 2017].
Mata, M. (2017). Foreign investors hit with higher taxes. [online] Your Investment Property. Available at: http://www.yourinvestmentpropertymag.com.au/news/foreign-investors-hit-with-higher-taxes-237125.aspx [Accessed 9 Jun. 2017].