Foreign investment in Australian real estate was a hot topic in 2016.
The year saw property prices soar across most of the country, affordability deteriorated, and sovereign interest concerns flared as foreign buyers bid for some of the country's largest landholdings.
By the end of the year, both federal and state governments had stepped in and tightened regulations for foreign investors, and increased the costs of transactions.
At the same time, local banks were tightening their lending practices for foreign buyers, putting caps on lending to non-residents, and adjusting lending ratios.
Annabel McFarlane, Jones Lang LaSalle's director – strategic research – Victoria, said moves by banks to tighten lending to foreign buyers is likely to have put more of a dent in foreign purchases than the new government controls.
"The surcharges may have a moderating effect," she said, but added, "it’s likely other factors may have a bigger impact, such as market conditions and visa rules.”
McFarlane said uncertainty created by the new regulatory regime may slightly reduce Australia’s appeal as a destination for foreign capital.
“Changes to investor rules always create uncertainty, which is not ideal," she said.
McFarlane also pointed out that Singapore and Vancouver have implemented similar controls in response to rapidly rising prices.
"Both Singapore and Vancouver introduced 15 per cent surcharges in 2013 and 2016, respectively, which were aimed at moderating the residential markets in those jurisdictions,” she said. Hong Kong has also increased charges to moderate the residential property market.
Foreign buyers of Australian property now have four types of government surcharges and taxes, according to Jones Lang LaSalle's 'The Investor' report.
The Foreign Investment Review Board
Foreign investors must now pay a fee of between AU$5,000 and AU$101,500 to register with the FIRB. The fee was introduced in December 2015.
FIRB approval is still required for all land acquired by a foreign government, all vacant commercial land, and all residential property.
Foreign investors are generally prohibited from purchasing established dwellings.
Thresholds apply to the foreign purchase of agricultural and commercial non-vacant land, and are dependent on a number of factors, including the nationality of the acquirer.
Australian Taxation Office
The ATO now conducts all FIRB residential real estate functions, including administering the new foreign resident capital gains tax withholding regime. Where a foreign resident sells an Australian property with a market value of more than AU$2 million, the purchaser must withhold 10% of the purchase price and submit it to the ATO.
Vendors can apply for a clearance certificate so purchasers don't have to withhold the 10%.
State Government Transfer Tax (ie. stamp duty) surcharges in Victoria, NSW and Queensland
The Victorian government introduced a foreign purchaser stamp duty surcharge on 1 July 2015 for residential property. Since then, Victoria has more than doubled this surcharge to 7 per cent, from 1 July 2016.
The NSW and Queensland state governments followed suit. NSW introduced a 4 per cent surcharge from 21 June 2016, and Victoria's 3% surcharge came into effect on 1 October 2016.
State government land tax surcharges for absentee owners in Victoria and NSW
From 1 January 2017, Victoria's absentee owner surcharge will triple from 0.5 per cent to 1.5 per cent. The surcharge applies to all Victorian land, although some exemptions are available.
NSW's 0.75 per cent surcharge became effective on 31 December 2016, and applies to residential land only.
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