The Australian economy have been on a record run that has few paralleled around in globe today or in history. It is as much as due to resilience of the economy as being the lucky country. 22 years since last the recession which during the interim we saw the start and end commodity super boom, global financial crises and now a record run in house prices.
The run up in house prices has priced many Australian’s out of the first step towards home ownership. Foreign investors are easy to blame for the primary cause but this overlooks the lack of construction in new dwelling from 2004 to 2014.
See our analysis of risks in loan cross collateralization
Foreign investors in Australia housing sector are segregated to new supply only. This means they are the primary drivers of new supply coming online from 2015 onward where there even risks of housing glut.
The state governments in addition to extend First Home Owners Grant around Australia have implemented a number of measures to limit additional foreign purchases.
Flow on effects on the Real Estate Market
Note the below amount foreign investors are a combination of stamp duty and land tax surcharges and have to pay are in addition to the state based stamp duties and FIRB fees.
These investors have been the primary marginal buyer of Australian properties. It should not be underestimates their support for pre sale volumes in getting projects out of the ground. Future volume from this segment of the market will change from a torrent to trickle.
We consider these taxes additional pressure on potential real estate market slow down. While we consider the additional supply in Brisbane market to be a risk for future price growth. Sydney and Melbourne property markets should adjust gradually to a slowdown.
New South Wales Foreign Investor Stamp Duty (NSW)
Duty will apply for after purchases made from 21 June 2016 with Duty surcharge of 4% as well as an Annual land tax surcharge of 0.75% which is applicable after 31 December 2016 for 2016 land tax year.
Victoria Foreign Investor Stamp Duty (VIC)
Victorian government implement a stamp duty that is double of NSW.
Duty will apply for after purchases made from 1 July 2016 with Duty surcharge of 7% as well as an Annual land tax surcharge of 1.5% which is applicable after 1 January 2017 for 2017 land tax year. Interesting that the Victoria land tax also applies not just to residential housing but also commercial property. This create a distortion in the investment returns between local and foreign owners of commercial property in Melbourne.
Queensland Foreign Investor Stamp Duty (QLD)
Queensland only have a stamp duty charge of 3% from October 2016.
South Australia Foreign Investor Stamp Duty (SA)
SA government has promised not to introduce any stamp duty for foreign buyers.