Foreign buyers who are looking to buy property in New South Wales (N.S.W) will now have to pay double the amount of stamp duty for the privilege. This change was introduced in the latest state budget which came into force in June.
What Changes Have Been Made to Australian Legislation
The NSW Treasurer reported that foreign investors of residential property would have to pay a 4 percent increase in stamp duty from June 21. It was also noted that land tax for foreign investors would increase by 0.75 percent from January 1, 2017.
A foreign investor is classified as an individual or entity that falls under the federal Foreign Acquisitions and Takeovers Act. Therefore, the new surcharges will not affect Australian citizens or New Zealanders, who have lived in Australia for more than 200-days over the last 12-months, or permanent residents of Australia.
Victoria raised its stamp duty to 7 percent, from 3 percent for foreign investors, and increased its land tax from 0.5 percent to 1.5 percent for residential property. Queensland doubled its stamp duty from 3 percent to 6 percent for foreign investors who purchase commercial and residential property, and the state is considering additional fees and charges for foreign buyers. Victorias change will come into play on July 1, 2016, while Queenslands will not be enforced until October 1, 2016.
The revenue raised from the increase in stamp duty is expected to put an extra $1 billion into each state governments kitty over the next four years. While some real estate experts are suggesting that the impact will only be minor, others such as the Property Council of Australia are concerned.
How Will This Change Affect Foreign Investors?
With the median price of homes in Sydney currently hovering around $995,000, the stamp duty foreign investors pay will jump from approximately $40,000 to just over $80,000. If foreign investors are seeking to buy a unit, then the median price for these is around $656,000, so they will pay a little less in stamp duty, but their bill will still increase by almost $27,000.
Though, given the strength of the market, many who support the introduction of the legislation feel that it is doubtful that the increase in surcharges will deter foreign investment. Critics of the legislative changes believe that the impact will be profound.
What Concerns are There Over the Change in Legislation?
The Property Council of Australia (PCA) and other critics of the changes are concerned that the hike in stamp duty will hurt the level of foreign investment. Firstly, foreign investors who are buying-off-the-plan will have to pay more property. This price increase may deter buying, and slow down development. Plus, foreign investors may be eager to close their deals before legislation is implemented so that they don not incur higher costs. The PCA also suggest that foreign buyers who have been investing in Victoria, Queensland and NSW may begin to look at other states to purchase property.
Changes to Queensland legislation may have a greater impact as this state is also increasing stamp duty that companies pay on property. Many Queensland-based businesses have foreign shareholders. It is also important to note that changes to legislation in this state will affect student accommodation, and retirement homes, villages and aged care facilities, as well as hotels and motels. Foreign investment drives most of these types of developments.
Why Have These Changes Been Made By State Government?
The state governments have said that they feel these new charges will ensure foreign investors are paying a fair share and contribute to the maintenance of public services and infrastructure. These new taxes will allow the respective states to increase liveability and introduce more amenities.
All states believe that the new taxes are an effective way to increase revenue without deterring foreign investment. This analogy derives from the majority of economists indicating that foreign investors are still likely to make substantial capital gains despite having to pay more in stamp duty and other fees
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Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!