Treasurer Jim Chalmers has revealed a tripling of foreign investment fees on established homes and a doubling of vacancy fees for foreign-owned dwellings bought after mid-2017.
The Australian Taxation Office’s (ATO) abilities to police foreign investors will also be reinforced.
Finally, from Thursday, the Government will reduce foreign investment application fees for built-to-rent projects to their lowest commercial level.
Right now, build-to-rent developments can face higher fees if they’re built on certain types of land, like residential land.
The proposed changes come amid record-low rental vacancy rates – with just 1.02% of Aussie rental properties vacant in October, according to PropTrack data.
“This is all about making more homes available to more Australians,” Dr Chalmers said in the wake of the announcement.
“It’s about boosting housing stock and getting more homes onto the rental market.”
Foreign residents who purchased Australian residential real estate after mid-2017 must pay an annual fee if their property sat empty for more than half of the year.
Doubling it in 2024, together with previous changes, will result in vacancy fees having been increased six-fold for future purchases of established dwellings.
That’s the case even if the property was leased for periods of less than one month.
And while there are limited circumstances in which a foreign investor can buy an established home, those who can will soon see applicable fees increase three-fold.
A foreign person applying to buy a residential property this financial year will face a $14,100 application fee if their would-be home is worth $1 million or less.
The Government plans to introduce legislation next year in hopes of implementing the higher fees.
It’s expected to raise around $500 million that could help fund the Government’s housing policy.
Foreign investment needed to reach new home target
However, industry experts have warned that hiking fees charged to foreign investors could disincentivise global investment without majorly impacting housing supply.
The latest move comes on top of an increase to Foreign Investment Review Board fees, implemented in 2022, and upcoming reforms to Australia’s thin capitalisation regime.
“Build-to-rent has the potential to create 150,000 homes over the next decade, but the settings must be right,” Property Council of Australia CEO Mike Zorbas said.
“It is clear that changing property investment rules week in and week out, evident most recently in taxes rushed through by the Victorian and NSW governments, will prevent us reaching our 1.2 million homes target.”
The property industry body has previously called for the Government to halve the tax charged to managed investment trusts – a typical vehicle of foreign investment – constructing build-to-rent developments.
Housing Industry Association chief economist Tim Reardon agrees, saying “a range of punitive taxes” aimed at foreign investors have helped to nearly halve the number of apartments being built since 2016.
He also noted his belief that Australian Bureau of Statistics data showing around 10% of homes were vacant on census night is misleading.
“Around half of these ‘vacant homes’ are people away from their primary residence on census night as they are on holidays, some are for sale, some being renovated or are in regional areas away from employment opportunities,” he said.
“It is a fallacy to think that 10% of homes are unoccupied and unhelpful for policy makers to suggest that homes are being withheld from the market when a core problem is that governments continue to increase tax imposts on new homes.
“If governments tax something, there will be less of that item.
“In order to address the acute shortage of housing stock, governments need to attract more foreign investment, not increase taxes on them.”
Finally, Propertyology head of research Simon Pressley told Your Investment Property Magazine that the policy changes will have no material impact on market conditions.
“Any government who truly cares about improving Australia’s housing situation must focus on the core issues,” he said.
“That means having the courage to unwind a series of policies that, for the last eight years, have collectively discouraged everyday Aussies from investing in more rental supply.
“It also means improving credit policy and replacing stamp duty with a more efficient housing levy.
“This is yet another example of a politician standing on a podium and pretending to take the national housing mess seriously.
“Surely people are intelligent enough to see that the government’s primary motivation for these changes is raising more tax revenue. That’s it.”
Image by Casey Schackow on Unsplash.
