News Blog - Residential

14 March 2017

POTENTIAL CHANGES FOR FOREIGN INVESTMENT?

Reports emerged this week about a potential return for offshore investor restrictions for off the plan property.

In a bid to help with the “housing affordability crisis”, such restrictions would limit the purchasing power of offshore investors and assist first home buyers and local buyers by limiting the competitiveness in the market.

Some light was recently shed on the impact that foreign investors are having on the Australian property market. According to data from the Office of State Revenue, new figures have shown that foreign nationals made up 11% (one-third of which are Chinese nationals) of residential property purchases in NSW in the third quarter of 2016.

When comparing this to the 7.51% that are purchased by first home buyers, we begin to see the effect offshore investment and subsequent housing affordability is having on Australian residents.

If the federal government decide to go through with the restriction, it will be the first time since the Global Financial Crisis (GFC) in 2009 that Australia has had such a law.

Residential blog

WHAT IS THE PROPOSED RESTRICTION?

Treasurer Scott Morrison declined to confirm the proposed changes, however, it is believed that implementing a foreign investor cap would limit the number of new apartments a developer can sell to foreign investors within a single development.

Prior to the GFC, foreign investors were only allowed to make up a maximum of 50% of sales for new developments. It is believed that if a cap were to proceed, it could be a very similar system.

In addition to this, there is also a push for NSW state legislation to further increase the stamp duty surcharge paid by foreign investors from 4% to 7% (additional to the 5.5% that local buyers pay).

Domain News claims opposition leader Luke Foley is a firm believer in the potential to “level the playing field for first home buyers” through the influence of the increased surcharge.

There is the belief that the increased stamp duty will take some pressure off housing prices and aim to stabilise foreign investor demand and market competition.

WHAT WILL THIS MEAN FOR THE EVERY-DAY BUYER?

For one thing, we could see an uplift in buyer sentiment. With such restrictions in place a local purchaser can feel more comfortable that there will be a greater number of local buyers within the building.

There has long been a fear of buying into a building that could potentially be half empty or majority tenanted with offshore investors buying en masse. The proposed changes could limit the turnover of tenants and create a greater community feel within the development with more owner occupiers in the complex.

Another important aspect is the increased ease at which first home buyers can enter the market.

With prices in Sydney continually rising, purchasing off the plan is a great opportunity to purchase at a set price rather than the uncertainty that an auction can bring when buying established properties.

Additionally, by the time settlement occurs 1-2 years later it is often the case that the capital value has risen, offering the chance to see immediate equity on the initial investment.

It will be interesting to see what changes (if any) are implemented by both the State and Federal Governments surrounding the ongoing affordability issue as well as foreign investment.

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Date: 14 March 2017 Author: Steven Filler
Residential
Steven-Filler-admin

About the author:

Steven Filler

As a Research Analyst for TGC Residential, Steven is an expert in Sydney sales market trends both for developers and buyers. With an avid interest in property, Steven has the passion and knowledge to ass

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