In Western Australia’s recent state budget, it was announced that the government would raise the foreign buyers surcharge from 4 per cent to 7 per cent before 2019 in a bid to bring in an additional $50 million to state coffers.
Releasing the budget earlier this month, WA Treasurer Ben Wyatt commented: “Last year, I also announced the introduction from 1 January 2019 of a 4 per cent surcharge on purchases of residential property by foreign individuals and entities.
“In this budget, we have decided to bring Western Australia into line with other states and raise the foreign buyers surcharge to 7 per cent.
“This increase will raise an estimated additional $50 million, bringing the total estimated revenue from the foreign buyers surcharge to $123 million over the forward estimates period — at no cost to Western Australians.”
Mr Wyatt added: “It is fair for foreign owners of residential property, who benefit from our services and infrastructure, to make a contribution to budget repair.”
However, critics have hit out at the proposed plans, arguing that it will radically slow foreign investment and impact the recovery of the Perth property market following the mining downturn.
The president of the Real Estate Institute of Western Australia (REIWA), Hayden Groves, said that while he was pleased that the government did not increase property taxes generally, he said that the foreign buyers surcharge was a “blow for the property market”.
Mr Groves said that the measure would “deter much-needed investment in the state, while doing nothing to make housing more affordable for West Australians”.
He argued that, on the contrary, rent prices could increase “due to a lack of stock as investors look elsewhere”.
The REIWA president continued: “This policy measure also puts construction jobs at risk, as off-the-plan developments usually rely on securing a portion of pre-sales from foreign investors before funding can be secured.
“While this does not affect large-scale apartment development, it contradicts the WA government’s push for more medium-density housing. Deterring foreign investment means these projects may never eventuate, costing WA jobs.
“The short-term financial gain of this surcharge is likely to be counteracted by long-term losses as investors seek an alternative place to invest.”
REIWA also bemoaned that the McGowan government did not change the First Home Owner Grant, arguing that it “remains unfairly skewed towards new-build properties and that there is no transfer duty concession for seniors to enable them to ‘right size’ into more suitable accommodation”.
Lessons from abroad
Likewise, Carrie Law, CEO of international real estate website and partner to Chinese online site Tencent, Juwai.com, highlighted the impact that a similar foreign buyer tax hike that was brought in by Toronto province’s government last year.
Ms Law commented: “After Toronto’s new foreign buyers tax kicked in, Chinese demand dropped like a bowling ball, but now that ball may be bouncing.
“Chinese buyer inquiries halved in the two months after the tax was imposed and hit a low point in January, but they have grown over the most recent two months. Whether this upward trend continues for a third month, we don’t yet know.”
Ms Law said that other cities had been negatively impacted by foreign buyer taxes in Honk Kong, Vancouver and Singapore.
We expect a significant recovery in Chinese buying by year’s end, although not to the levels of April last year.
“From other markets that have imposed foreign buyer taxes… we know that there is often a pattern to the Chinese buyer reaction.
“Chinese buying drops off precipitously in the short term, then partially recovers in the medium term, and can fully recover in the long term, although this depends on particular market dynamics.”
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.