Some experts believe that the higher tax rate on foreign property buyers in the state of New South Wales would have a softer impact, even though developers have warned that this could slow down construction activity, reported The Australian.
Last week, the state government announced that the land tax surcharge for this group will be increased from 0.75 percent to two percent annually. It will also abolish the stamp duty concessions for those purchasing off-plan properties, who are often non-residents.
Moreover, the state’s foreign investor stamp duty surcharge will be doubled to eight percent starting on 1 July 2017, meaning it will surpass Victoria’s current rate of seven percent.
According to CLSA’s Real Estate Head Sholto Maconochie, this would have limited impact as listed developers Lendlease and Mirvac have already reduced the units being sold to people who require approval from the Foreign Investment Review Board (FIRB) to 30 percent at most developments, with Chinese nationals usually accounting for up to 66 percent of this group.
While there are cases where the percentage is higher, foreigners who need the FIRB’s nod are only allowed to purchase up to 50 percent of the available units.
“We believe these changes are incrementally negative for both Mirvac and Lendlease on new apartment sales post 1 July 2017, and will soften demand at the edges,” he noted.
But Maconochie added that even with the higher taxes, home prices in New South Wales would still be more affordable than those in Singapore and Chinese cities like Shanghai and Hong Kong.
Although doubling the foreign buyer stamp duty is expected to cool the market, it would not lead to a collapse in the sector, explained UBS Analyst James Druce. This is because the first tax of four percent imposed in June 2016 had very little effect and prices of houses in Sydney still compared favourably to other major cities in the world.
Previously, the Urban Development Institute of Australia warned that the higher taxes on foreign buyers would lead to long-term home price hikes. It could also lead to fewer purchases by this group, resulting in some projects being cancelled and exacerbating the undersupply of homes in Sydney.
This article was edited by Denise Djong.
