GLOBAL PROPERTY NEWS – Changes for foreign property buyers in Australia

Galetti Knight Frank June 7, 2017

Following increased community pressure around housing affordability, the Australian Government commissioned a study in early 2014 to be undertaken by the House Economics Committee on the role foreign investment plays in residential property.

The eight-month investigation resulted in a list of 12 recommendations, including a modest administration fee to be collected upon lodging an application, enhanced data collection, stricter fines for purchasers and associated third parties.

Foreign buyers are now subjected to a Foreign Investment Review Board (FIRB) application fee starting from AU$5,000, while the Australian Taxation Office has been given responsibility to regulate foreign investment with civil and criminal penalties imposed, including third parties who knowingly assist a foreign investor in breaching the rules.

In addition, state-based surcharges were introduced in New South Wales, Victoria and Queensland for buyers and owners.

Fast-forward to March 2017, the Victorian Government announced a housing affordability package that abolished investors stamp duty concessions for all buyers – being implemented from 1 July 2017 – and a vacancy residential property tax for all owners being introduced on 1 January 2018.

The Federal budget was then handed down on 9 May 2017 setting the economic and fiscal outlook for 2017-18. Key measures introduced for the residential property sector included (effective immediately):

• The introduction of an annual levy for Australian foreign-owned vacant residential property. The levy is equivalent to the foreign investment application fee imposed on the property by the FIRB at the time the property was initially purchased.

• Changes to the Capital Gains Tax (CGT) regime to deny foreign and temporary tax residents access to the CGT main residence exemption, with existing properties grandfathered until 30 June 2019. In addition to, increasing the CGT withholding rate for foreign tax residents to 12.5% (from 10%) and reducing the threshold to AU$750,000 (from AU$2 million) effective 1 July 2017.

• New Dwelling Exemption Certificates now include a condition preventing developers selling more than 50% of lots within the development to foreign persons.

After consultation with former Governor of the Reserve Bank of Australia, Glenn Stevens, the NSW Government released a new housing affordability package on 1 June 2017.

Focussing more on the demand side of the equation, the package aims to help first home buyers to enter the market when faced with competition from investors, foreign buyers and a growing population.

From 1 July 2017, NSW stamp duty surcharges for foreign buyers will be lifted from 4% of the sale price to 8%. In Victoria, this surcharge is currently 7%, while the duty in Queensland is 3%.

The annual land tax levy surcharge will rise to 2% (from 0.5%) of the land value, to stand on par with Victoria. No other states have introduced these measures. In addition, all NSW investors will no longer be able to defer paying stamp duty on off-the-plan purchases.

Other measures for first home buyers introduced include abolishing stamp duty on all homes up to AU$650,000, with relief for those up to AU$800,000, abolishing insurance duty on lenders’ mortgage insurance and providing a AU$10,000 grant for builders of new homes up to AU$750,000 and purchasers of new homes up to AU$600,000.

Download the Australian Residential Insight to keep up with legislative changes across Australia’s residential property markets.

Galetti Knight Frank

Marketing Manager at Galetti Knight Frank

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