NSW, the most populous state in Australia, has enforced a 4% stamp duty surcharge that came into effect 21 June 2016 and will implement a 0.75% land tax surcharge on overseas buyers from 2017.
This is in addition to the stamp duty that is required for all buyers. The action is projected to generate over A$1 billion over the next four years.
According to CoreLogic, overseas purchases, with Chinese people accounting for much of it, have driven Sydney’s median housing prices to nearly double since the end of 2008. This has led to concerns that locals are being priced out of the market.
The move also comes amid a crackdown on home loans to non-Australians by the biggest banks due to worries that foreign purchases may be blowing up a bubble in the real estate market.
According to an analyst at Morningstar, foreign investors are looking at long term, so the new measure is not likely to hinder them because the tax is already upwards of 10% in some countries around the world.
The move by state government has an aspect of money grab as well as a chance to raise certain level of political goodwill.
The analyst expects the yearly land tax surcharge will a more significant effect on non-Australians who purchase to lease the properties because it will further reduce yields. CoreLogic data shows that homes in Sydney generated a gross yield of 3%, while units had 4%, both at record lows. This is one of the reasons we are seeing more Sydney investors buying in Newcastle.
Per the New South Wales government website, at present, NSW home purchasers pay A$40,490 in stamp duty on a home valued at over A$1 million.
In Hong Kong, a surcharge of 15% tax on purchases by foreigners and companies was implemented in 2012, due to surging demand from Chinese purchasers.
In 2013, Singapore increased the additional tax on non-residents from 10% to 15%, in addition to the basic 3% stamp duty paid by buyers.
In Victoria, the stamp duty surcharge for non-resident buyers will be increased to 7% from 3% beginning 1 July 2016. In Melbourne, the capital of Victoria, the median home value has increased 60% since the end of 2008, said CoreLogic.
From the Foreign Investment Review Board’s annual report, Chinese investment on residential and commercial properties in Australia increased to A$24.3 billion in 2015, from A$12.4 billion in 2014 and A$5.9 billion in 2013.
In its semi-annual evaluation of Australia’s financial system in April 2016, the Reserve Bank of Australia cautioned of an “indirect risk” stemming from the purchase of Australian properties by Chinese investors.
In April 2016, funding to foreign customers was restricted by the four biggest banks in Australia: Australia & New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp.