Australian state of Victoria squeezes foreign homebuyers

The Australian state of Victoria said on Wednesday it was more than doubling taxes on foreign property buyers in a move reflecting growing public concern over the volume of Chinese money flowing into the local real estate market.

The move to increase stamp duty surcharges for foreigners to 7 per cent from July 1, up from 3 per cent, comes as New Zealand considers a land tax on foreigners. Fiji has already tightened rules on property and land purchases by foreigners to combat “speculation”.

“It’s only fair that foreign buyers of residential real estate, who enjoy the capital growth as a result of Victoria’s liveability and the amenity of our cities, contribute to the maintenance of government services and infrastructure,” said Tim Pallas, Victoria’s treasurer.

Australia approved $24bn in Chinese property investments in 2014-15, double the previous year’s figure. Australian property prices, particularly in Sydney and Melbourne, have experienced a four-year boom that is focusing political attention on housing affordability.

The opposition Labor party is promising to cut tax breaks for buy-to-let investors ahead of a July 2 election, while Victoria’s stamp duty increase for foreign buyers comes just a year after it introduced the tax for the first time.

“Doubling the tax within a year makes foreign buyers feel very unwelcome,” said Esther Yong, director of ACproperty, a Chinese-language property portal.

There are already signs that tighter scrutiny of foreign transactions, restrictions on bank lending to foreigners and the stamp duty tax in Victoria are beginning to temper overseas demand for property.

House prices rose by just 0.2 per cent in the December quarter, according to official statistics. Sydney house prices fell 1.6 per cent — the first decline for more than three years.

National Australia Bank’s latest Residential Property Survey shows the number of foreign buyers as a proportion of overall transactions fell to 11.8 per cent in the three months to end March, from 14.4 per cent three months earlier — its lowest level in 2.5 years. Foreign buyers accounted for 15.1 per cent of demand for new apartments in the first quarter, compared with 17.9 per cent in the previous three months, according to the survey.

Alan Oster, NAB’s chief economist, said the reduced foreign demand probably reflected oversupply, particularly in the Melbourne market where up to 30 per cent of city centre apartments were unoccupied.

“For many Chinese buyers buying a property in Australia is not about yield, it is about getting their money offshore,” he said.

He said the inflow of foreign money was a short-term boon for the economy but could become a risk if Chinese buyers suddenly wanted to withdraw.

The Reserve Bank of Australia echoed these sentiments in its latest report on financial stability.

“A substantial reduction in Chinese demand would likely weigh most heavily on the apartment markets of inner-city Melbourne and parts of Sydney, not only because Chinese buyers are particularly prevalent in these segments but also because other factors would reinforce any initial fall in prices,” said the RBA.

On Wednesday, Westpac followed Commonwealth Bank of Australia and ANZ Bank in tightening lending to foreign residential property buyers to limit its exposure. The bank said it would no longer accept mortgage applications from non-residents; self-employed foreigners or temporary visa-holders living overseas.