Australia: Australia taxes foreign home buyers as affordability bites

Sydney is imposing new taxes on foreigners buying homes as concerns grow that a flood of mostly Chinese investors is crowding out locals and killing the “Great Australian Dream” of owning property.

Ownership rates across the country are part the highest in developed nations, with having your own home long viewed as a key aspect of Australian identity.

But as prices rise to record levels — Sydney is ranked only second to Hong Kong as major cities with the world’s least-affordable housing — new potential homeowners have been increasingly forced out of the market with foreigners blamed as a key factor.

“The governments want to respond to a perception about housing affordability and the impact of foreign investment on that,” KPMG Australia’s indirect tax specialist Michelle Bennett told AFP.

“(Politicians) are raising money from people who aren’t voting, so superficially you can understand that it’s possibly not bad politics,” she added, but warned the measures could be a “blunt instrument” that could hurt the market.

Last year, leading apartment developer Lend Lease sold out additional than Aus$600 million (US$445 million) worth of new units in Sydney’s Darling Harbour in under five hours, with The Australian Financial Review reporting that one-third of buyers were foreign.

Lend Lease said the sale broke local records but such reports have as well fuelled calls for government action to protect Australian buyers.

In response, the New South Wales, Victoria and Queensland national governments have introduced or are set to slap new property and land taxes on foreign buyers, sparking an outcry from developers fearful that they will flee to other markets such as New Zealand and Canada.

“It is very bad. Without the Chinese nothing would ever get built,” the country’s richest man and chief of prominent developer Meriton, “high-rise” Harry Triguboff told The Australian Financial Review this week.

“At no time mind the bullshit stories, sales volumes have by presently dropped and prices are coming down steadily. The Chinese buyers are by presently disappearing.”

Government crackdown

Analysts say Australia is an appealing market particularly next Hong Kong and Singapore introduced a 15 % property tax on non-local buyers and as the local dollar weakened against other currencies.

The proposed tax in Sydney’s New South Wales national to be announced this week would be only four %, in Queensland it is three % and in Victoria seven %.

The island continent experienced an average 7.25 % annual housing increase over the completed three decades according to the central bank, attracting Chinese investment into commercial and residential real estate.

Chinese invested Aus$4.2 billion in 2011-12, rising to Aus$24.3 billion in 2014-15 according to Australia’s Foreign Investment Review Board, making them the major overseas buyers.

But foreign investment — inclunding in local firms and agricultural land — is politically sensitive and last year the national government forced some offshore owners to sell properties next tightening regulations.

Housing affordability, and the role of property investors, has as well been a key battleground ahead of national elections on July 2.

But with housing prices appearing to be coming off the boil and the economy transitioning away from a mining boom, analysts say the national taxes could backfire.

“It’ll have ramifications down the track at the same time as the market goes through a pretty significant downturn in terms of construction and developers are finding it hard to get projects going,” BIS Shrapnel’s managing director Robert Mellor told AFP.

Signs of a softening housing market could as well be why states appear to be trying to “grab some revenue while it’s on offer”, leading property data provider CoreLogic’s Australia research chief Cameron Kusher said.

Meanwhile, there are question marks about whether current data adequately captures the full extent of foreign investment in Australian real estate, with some statistics not delineating between commercial and residential property purchases.

In one estimate, University of Sydney researchers last year said offshore Chinese purchases only totalled two % of all transactions in 2014 out of in general residential home sales of Aus$270 billion, the Sydney Morning Herald reported.

Despite the new tax hurdles, Kusher expects long-term Chinese housing investment to continue.

“The people that are buying for the long-term… maybe at some point to migrate to Australia, I don’t think it would act as too much of a deterrent for them,” he told AFP.