The property market is set to change in
Australia, with further price declines likely as state and federal governments
initiate an aggressive crackdown on foreign investors. The Federal government
has already introduced ownership caps and removed capital gains tax exemptions
for overseas buyers, as NSW and Victorian state governments start their own
initiatives in an effort to stop unsustainable price growth. The crackdown will
mostly affect Chinese investors, who are also facing moves by their own
government to prevent money flowing offshore.
Last year the Federal budget made things
much less enticing for foreign investors by removing capital gains tax
exemptions for overseas buyers. The budget also introduced a 50 percent
ownership cap for new residential developments and introduced a “ghost tax” in
an effort to stop so many properties from sitting empty. The Australian
Taxation Office now have the power to fine foreign investors up to $5500 a year
if they leave their properties empty, along with fines of up to $52,500 if they
fail to lodge their forms.
While the situation is slowly changing, the
vast majority of foreign property investment in Australia takes place in NSW
and Victoria. Both states recently introduced their own measures, with the NSW
government doubling stamp duty for foreign investors last year from 4 percent
to 8 percent and increasing the annual land tax surcharge from 0.75 percent to
2 percent. According to Credit Suisse, this will have a big effect on the NSW
property market, with 25 percent of all new supply in NSW purchased by foreign
interests and Chinese buyers accounting for almost 80 percent of this demand.
The Victorian government has introduced its own measures, including a vacant
residential land tax with potential fines equal to 1 percent of the property’s
value if they are left empty.
According to UBS head of global property
research Kim Wright in an interview with The Australian, these new measures
will have a huge impact on Chinese investors: “What we have found is that
Chinese buying of property abroad tends to be very price and currency-aware.
Their focus on specific markets will fade or pick up, depending on their view
of currency. Over the last two years we have seen Asian buying of Australian
property, specifically Sydney, Melbourne and Brisbane, that’s been very strong.
It looks like that has started to fade over the past six months. I think it’s
the combination of factors. Prices have been very strong in Australia so there
is now a discussion that the cycle has started to peak and there’s the tax
changes that have come through along with the tax controls.”
Less foreign money flowing into the
property market may help conditions to cool, with national dwelling values
falling by 0.3 percent in December according to CoreLogic data. According to
AMP Capital chief economist Dr Shane Oliver, less Chinese money will mostly
affect Sydney and Melbourne: “The Sydney and Melbourne property boom continues
to deflate... Tighter lending standards, rising levels of unit supply, slower
Chinese demand and reduced investor enthusiasm for property are all impacting
and are likely to lead to further declines in Sydney and Melbourne property
prices this year of around 5 per cent - maybe a bit more in Sydney and a bit
less in Melbourne... It also provides a bit more room for first home buyers.
However, other cities are running to their own cycles with Hobart likely to
continue strengthening, Perth and Darwin close to the bottom and moderate
growth in Adelaide, Brisbane and Canberra.”
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