NSW is now the highest taxing state for foreigners buying residential property

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New South Wales, which today announced a series of measure aimed at improving housing affordability, is now the highest taxing state for foreign investors in residential property.

The foreign investor stamp duty surcharge is doubling to 8% from 4%, with land tax increased to 2% from 0.75%.

Victoria previously had the highest tax for foreigners with a 7% duty surcharge on top of the usual 5.5% rate and 1.5% land tax surcharge.

In NSW the effective tax rate for foreign investors will now be 13.5% duty (5.5%, plus 8% surcharge) and a land tax surcharge of 2%.

According to research by Credit Suisse, foreigners had been buying property at an annualised rate of $8 billion, equating to 25% of new supply in New South Wales and 16% in Victoria in the past 12 months.

However, the federal government, and regulators, have recently deployed a series of measures aimed at cooling Australia’s booming property market. And authorities in China have been cracking down on the amount of money flowing out of the country.

The latest numbers show foreign investment applications for residential housing has fallen sharply.

Brendan Rynne, KPMG’s chief economist, says a 15% increase in stamp duty/property transfer taxes for non-residents was one of the key factors behind the decline in foreigners purchasing residential property in Vancouver in the second half of 2016.

This same time period also saw median house prices fall 3% in nominal terms.

“The Vancouver government then introduced a generous first home buyers scheme in early 2017, which bought more buyers back into the market – a market that had reduced properties for sale as vendors weren’t prepared to sell for the reduced prices,” says Rynne.

“This had the impact of increasing prices back up to the levels they were prior to the introduction of the differential stamp duty system between residents and non-residents.”

NSW is also abolishing stamp duty for first homebuyers on existing and new homes up to $650,000 and stamp duty discounts up to $800,000. This change from July will save up to $24,740 for first homebuyers.

“By NSW introducing these together — and assuming they have the same impact as we’ve seen actually happen in Canada — then the likely effect is that house prices could stabilise or fall marginally,” says Rynne.

“The timing effect is that one buyer group replaces another — albeit the first home buyer group is likely to have a lower price point than the foreign buyers … hence the slight fall.”

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