The Australian economy was on a record run before Covid, which had a few paralleled around the globe. It is as much due to the resilience of the economy as being the lucky country. 30 years since between recessions, we saw the start and end super commodity boom, global financial crises and now a record run in house prices.
The run-up in house prices (especially Sydney apartment prices) has priced many Australians out of the first step towards homeownership. Foreign investors are easy to blame for the primary cause, but this overlooks the new dwelling’s lack of housing and apartment construction from 2004 to 2014, contributing to the lack of supply while population growth kept going. The spread between median Sydney and Melbourne house prices highlights this contrast where Melbourne can increase housing supply and keep its residential prices in check due to its geographical outlay. On the other hand, Sydney is surrounded by natural land constraints coupled with artificially keeping its apartment supply low, which saw significant residential prices increase.
See our analysis of risks in loan cross collateralization.
Foreign investors in the Australian housing sector are only allowed to buy new apartments hence a specific portion of the residential market. This means they were the main driver of new supply coming online during the last boom. But they took most of the blame for pricing new home owners out of the market. These investors have been the primary marginal buyer of Australian properties.
In response, the state governments extended First Home Owners Grant around Australia. They implemented many measures to limit additional foreign purchases, with a double layer of foreign investor stamp duty being the most visible form of the increased hurdle.
Flow on effects on the Real Estate Market
Note the below amount foreign investors are a combination of stamp duty and land tax surcharges and have to pay and the state-based stamp duties and FIRB fees.
It should not underestimate foreign investors’ importance in providing the pre-sale volumes which kick off the construction. The onset of foreign investor stamp duty will limit future volume from this segment from a torrent to trickle.
We consider these taxes additional pressure on potential real estate market slow down.
- The additional supply in the Brisbane market to be a risk for future price growth.
- Sydney and Melbourne property markets should adjust gradually to a slowdown.
- Perth house prices will see a slower than expected recovery with limit catalyst on the horizon for population growth.
Australian Foreign Investor Stamp Duty List By State 2021
New South Wales Foreign Investor Stamp Duty (NSW)
New foreign investor stamp duty will apply for after purchases made from 21 June 2016 with a duty surcharge of 4% and an annual land tax surcharge of 0.75% applicable after 31 December 2016.
Victoria Foreign Investor Stamp Duty (VIC)
The Victorian government implemented a stamp duty that is double of NSW.
Duty will apply for after purchases made from 1 July 2016 with a duty surcharge of 7% and an annual land tax surcharge of 1.5% applicable after 1 January 2017 for 2017 land tax year.
Interesting that the Victoria land tax also applies to residential housing and commercial property, which can distort the investment returns between local and foreign commercial property owners in Melbourne.
Queensland Foreign Investor Stamp Duty (QLD)
Queensland only has a stamp duty charge of 3% from October 2016.
South Australia Foreign Investor Stamp Duty (SA)
SA government has promised not to introduce any stamp duty for foreign buyers.