News Blog - Residential

04 July 2016

NSW FOREIGN INVESTOR RULES TO CHANGE

Both foreign investors and NSW property experts look to NSW Treasurer Gladys Berejiklian as it is expected that she will announce tightening measures on foreign investment in her second budget on June 21.

“Offshore investors account for about 15-20 per cent of pre-sales in our capital cities and help switch projects from concept to construction,” said Glenn Byres, the Property Council’s chief of policy and housing.

Scott McGill, tax partner at accountants Pitcher Partners , said Victoria, which introduced a 3 per cent foreign buyer surcharge last year, had already started to see foreign investors pulling out of the market, with international developers scaling back on land acquisition, he said.

But Ms Berejiklian took a different view: “The Victorian experience has demonstrated that the measures have not had an adverse impact on the property market.”

Leaning towards the same movements that Victoria took in April, the Treasurer is set to announce the introduction of a 4% stamp duty surcharge for all property purchased by foreign investors. This is in addition to the already existing approx. 4% – 5.5% stamp duty tax for properties up to $3 million. If the value of the property exceeds $3 million, the foreign investor is looking at an additional 4% on top of an already existing 7% stamp duty.

Additionally, an incurring 0.75% land tax is to be added annually on to the existing 1.6% (threshold above $482,000) or 2% if it exceeds the premium threshold (over $2,947,000). They will not be provided with a tax-free threshold for the land tax surcharge (an additional $3,615 being 0.75% for the first $482,000…payable every year).

The stamp duty surcharge will be exercised as soon as this month, with the impending land tax to take effect from January 1, 2017.

stamp3

The announcement of this tightening of foreign investor policy is sure to anger a number of people both in Australia and overseas. Although Ms Berejiklian is of the belief that the measures will not deter foreign investment in Australian property, it is hard to see how this will not have an adverse impact on the property market.

Using these surcharges as a tool to “fund vital services into the future”, there is a fear amongst developers and agents alike that investors will simply start to seek property in other overseas markets. Such measures are stated to gain revenue of over $1 billion over the next four years, according to the treasurer, as well as attempting to improve housing affordability.

It was widely expected in the previous months that NSW would follow Victoria in hiking foreign taxes, with Fairfax Media predicting the actions back in April. The announcement in Victoria last year came much to the dismay of Real Estate Institute of NSW president
Malcolm Gunning, imploring NSW governments to not take similar actions as “foreign investors would simply decide to invest somewhere else”.

The NSW announcement follows both Victoria and Queensland announcing new taxes on foreign buyers of residential property and after the major banks pulled back from lending to foreign buyers amid concerns of oversupply in some inner city apartment markets.

As a member of the property industry and with 20 years of experience with foreign buyers, it is outrageous that the government continue to produce punch after punch on these investor groups. Claims by Ms Berejiklian that “these new measures will ensure NSW’s property market continues to be an attractive destination for international investors” are open to debate. We in the coalface are already witnessing the opposite effect.

The addition of tens of thousands of dollars to purchasing costs for foreign buyers has similarly been slammed by Meriton boss Harry Triguboff. Holding the title of Australia’s richest man, Mr Triguboff stated in The Australian Financial Review that without Chinese investment, “nothing would ever get built”. He also identified that despite government claims that this will not have adverse effects on sales volumes, it is apparent that “Chinese buyers are already disappearing”.

“For foreign developers purchasing a typical $20 million Sydney apartment site, they will be hit with an $800,000 stamp duty surcharge, while an offshore off-the-plan buyer of a typical $750,000 inner city unit will have to fork out more than $59,000 in transfer duties  – double what it would cost a local buyer.”   Australian Financial Review

Many of us remember the ill-fated vendor duty that was introduced in April 2004 and quickly abolished in 2005. Rather than have the desired effect, it caused a substantial slow-down in property transactions, with a negative impact on tax coffers.

The vendor duty tax was a flat rate of 2.25% on the dutiable value (not the profit or gain) on the sale or disposal of certain properties. Duty was payable on properties regardless of when they were purchased.

The NSW Premier at the time, Morris Iemma said the vendor duty, introduced by the labour government, was a “brake on economic activity” and the removal of such would “stimulate economic activity… (having) a positive psychological effect on business.”

Are we now about to witness the slaughter of golden geese?

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Date: 04 July 2016 Author: Jean-Paul Markopoulos
Residential
Jean-Paul-Markopoulos

About the author:

Jean-Paul Markopoulos

Jean-Paul is CEO & Licensee in charge of TGC Residential Projects, an arm of TGC who market and sell high end Residential Projects, mainly in the Sydney area. With over 20 years in the industry, Jean-Paul is recognised as a market leader in Residential Project marketing having set many record property prices.

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