NSW is hitting foreign property investors with $1 billion in new taxes

Photo: Patrick Riviere/ Getty Images

The New South Wales government is after a bigger slice of the overseas investment flooding into Sydney’s booming property market, with treasurer Gladys Berejiklian announcing today that next week’s state budget will include foreign investor surcharges on stamp duty and land tax on residential real estate.

A little over 20% of property in Australia is sold to foreign investors.

NSW is now the third east coast state to look at foreign investment to boost state coffers after Victoria increased the surcharge for foreign buyers of residential property from 3% to 7% in its April budget. The change comes into effect from July 1. Victoria also trebled its land tax surcharge on “absentee landholders” from 0.5% to 1.5%.

Treasurer Tim Pallas expects it will deliver an additional $486 million in revenue over the next four years. The move comes after the introduction of the 3% surcharge appeared to have no impact on demand, despite predictions to the opposite from the real estate industry.

Last week Queensland’s Labor government announced its own 3% transfer duty surcharge.

Treasurer Curtis Pitt says the move will generate around $25 million for the state annually, adding about $14,000 to the price of the average $475,000 price of a Queensland home.

NSW treasurer Gladys Berejiklian will add a 4% stamp duty surcharge on residential property bought by foreign purchasers, plus 0.75% land tax surcharge for foreign owners from the 2017 land tax year.

She expects the move to generate $262 million in total next financial year and more than $1 billion over four years.

“The Victorian experience has demonstrated that the measures have not had an adverse impact on the property market,” Berejiklian said.

“These new measures will ensure NSW’s property market continues to be an attractive destination for international investors while making sure that we are able to fund vital services into the future.”

Under the changes, foreign investors will no longer be entitled to the 12-month deferral for the payment of stamp duty for off-the-plan purchases of residential property and will not get the tax-free threshold for the land tax surcharge.

The move comes as developers are increasingly targeting the lucrative Chinese market with new residential sites in Australia.

The Property Council of Australia has been vociferous in its opposition to the surcharges, last week accusing the Queensland government of breaking its promise from 12 months ago not to introduce a surcharge, and turning its back on investors, claiming it would cost jobs.

Today, Scott McGill from Pitcher Partners Sydney claimed that Victoria was starting to see foreign investors pulling out of the market, and international developers scaling back on land acquisition.

Amid tightening lending restrictions, recent National Australia Bank data revealed foreign buyers of new property in Victoria in the March quarter slumped to their lowest since 2014.

McGill claimed the NSW decision would push up the price of property for everyone.

“Government can’t afford to come in with a knee jerk reaction to foreign investment without considering the downstream effects,” he said.

“You run the real risk of restricting supply and pushing up real estate prices – which is the last thing Sydney needs.”

McGill said it was “far too simplistic” to argue foreign investors were pricing local buyers out of the market.

“Higher taxes on foreign investors will not improve housing affordability, but rather it will undermine new supply coming on board,” he said.

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