Debbie Shankar - 22 Jul, 2016

Australian Luxury Home Market Unsettled by Rising Foreign Stamp Duty

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High-end real estate agents are saying that they’re beginning to notice a change in foreign investment numbers in the market as new stamp duty policy took effect late last month. These agents are suggesting that this may be a strategic manoeuvre by investors, rather than a long-term effect as the lure of top-end living in Australia is unlikely to lose its lustre.

Sydney-based real estate auctioneers feel there will be a few ripples in the luxury home market, with sales price falling. There will also be a little market uncertainty, but they are doubtful that the market will collapse.

The Newly Introduced Foreign Buyer Legislation

In the closing weeks of June 2016, the New South Wales (N.S.W) government introduced a 4% stamp duty surcharge and increased land tax by .75% on residential property. The land tax surcharge, however, will come into effect in 2017.

Auctioneers suggest that these new taxes will add a significant amount to a high-end purchase; a cost that sellers may be forced to cover. For instance, the acquisition of a $30 million property will incur an extra $1.2 million in stamp duty.

However, the state government says that the new legislation will raise more than $1 billion in stamp duty, which will help to improve infrastructure. They also suggest that the introduction of the new policy will not hinder the property market. Though buyers have entirely different thoughts.

Foreign Buyers Reducing Budgets to Compensate for Fees

Some Chinese buyers have told their realtors that they will have to adjust their budgets to suit the changes in legislation. One buyer said she was looking for a $25 million property; now she will look for a $20 million property instead. Other foreign buyers had similar thoughts, and many were saying that these legislation changes may foster a negative sentiment towards Australia.

A number of foreign investors said that changes of this nature were unsettling as it made it difficult to determine costs. Many of these investors also stated that they are concerned that this may the start of more changes in the future.


Foreign Investor Enquiry Still Strong

Some foreign investment real estate agents say that despite the changes to legislation and some disgruntled foreign investors, Chinese investors were still motivated to buy in Australia. These agents also noted that their level of inquiry was still high in May, with no visible fluctuation.

Luxury property agents say that buying in Sydney and Melbourne is similar to purchasing property in London and New York; these are world-class assets. Therefore, the financial challenges that foreign buyers encounter are offer negated by the advantages these homes offer them. Of course, everyone has their limits.

New South Wales is Not Alone

New South Wales is not the only state to introduce a new foreign buyer legislation. Queensland introduced a similar tax, where international buyers will pay an extra 3% in stamp duty as of October 1.

Victoria has also followed suit. This state’s stamp duty rose by 4% for foreign buyers, from 3% to 7%. This new tax came into force on July 1.

The Victorian stamp duty hike for foreign investors is excessive, with agents of prestige property suggesting that their buyers will begin to look to other states to purchase, such as New South Wales. For example, a $25 million property purchased in Melbourne by a foreign investor will now attract an extra $1.75 million in stamp duty. However, if the same property were bought in Sydney, it will cost an additional $1 million in stamp duty, saving the foreign investor $750,000 in tax costs.

Victorian agents say they are bracing themselves for the impact. New South Wales property is already considered as desirable, so this new tax may be enough to push a sizable segment of the market towards this state. This move may then see property prices in Melbourne fall, and Sydney’s increased.

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