Earlier this year the Victorian government announced foreign buyers of residential real estate would face higher stamp duty and land tax rates and it is believed the New South Wales government will make a similar announcement in its upcoming state budget.
From 1 July, stamp duty in Victoria for foreign buyers will increase from 3% to 7% and the land tax rate will increase from 1% to 1.5%. The NSW government is expected to lift its land tax rate to 1.5% for foreign buyers.
Concerns have been raised that the tax hikes would put NSW and Victoria among the most restrictive jurisdictions in the world for foreign real estate investors, but Mark Mendel, chief executive officer of off the plan property marketers iBuyNew, believes the higher tax rates will do little to stop the flow of foreign money to Australia and believes the NSW government should tax foreign buyers further.
“In Victoria they had [stamp duty] at 3% [for foreign buyers] and it had zero effect on the market and they’re now raising it to 7% and it will probably have zero effect,” Mendel told Your Investment Property.
“So I think we could have an expectation in New South Wales that a surcharge of 3% would have no effect on the market,” he said.
Critics of the plans believe the economy could suffer if foreign investors direct their attention elsewhere, but Mendel believes the tax increases will prove to be a benefit for the state governments and the public.
“[Foreign investors] buying a property obviously helps the economy in terms of the construction and keeping people employed. But why not have them put a bit more money back into the communities where these developments are being built?” he told Your Investment Property
“A lot of foreign buyers may not be living here. They’re either just moving their money her for their kids or political stability. So if they paid a bit more tax the local community would get the benefit of the development but also the benefit of parks and other facilities, which let’s face it a lot of communities really need and the government needs to find a way to fund it.”
Those opposed to the idea of the tax increases have pointed to the fact that they have been proposed at the same time many Australian banks are closing their books to foreign borrowers, but Mendel believes that practice is likely to only be temporary and will have little impact on the market.
“There’s a lot of talk at the moment about the restrictions on lending to foreign buyers. Based on what we’ve seen in the past whenever there’s a lending policy change, it’s normally something that’s short lived because the banks get scared when they start to lose business.
“If you look at Westpac now, they’ve reintroduced 90% LVRs for investor loans because they were losing business, simple as that. While there’s talk about it today, in six months’ time there will be probably be change in policy and start accepting foreign borrowers again.”
Non-major lender AMP became the latest to restrict lending to foreign buyers, last week telling brokers that it has classified non-resident borrowers as an “unacceptable borrower type.”
