Settling in Sydney just got more taxing

AUSTRALIA’S most populous state is more than doubling taxes on foreign homebuyers in a bid to tackle a housing cost crisis in Sydney, the country’s biggest city.

The move by New South Wales is the latest in a slew of taxes and restrictions on foreign buyers, mainly from China, who are blamed for fuelling a property boom in which prices have doubled in Sydney since 2009.

Last month, the federal government hit foreign investors with a “ghost tax”, a A$5 000 (about R48 000) annual charge on owners who leave their investment properties vacant or unavailable for rent for six months or more.

“I want to ensure that owning a home is not out of reach for people in New South Wales,” said state premier Gladys Berejiklian. “I am confident these measures will make a difference and allow us to meet the housing challenge.”

Money raised from the new taxes on foreigners is being diverted to first-time buyers in the form of tax relief and to help fund affordable housing.

A surge of mainland Chinese investment in international property has provoked a backlash, with new taxes imposed in jurisdictions from Canada to Hong Kong and Singapore. Australia approved A$31.9-billion in Chinese property investments in 2015-16, up almost a third on the previous year and about a quarter of all foreign investment approvals for property last year.

New South Wales is doubling stamp duty charges from 4% to 8% for foreign buyers, while the annual land tax surcharge on foreign homeowners will rise from 0.75% to 2%. Stamp duty concessions available to domestic investors will be abolished.

The measures form part of a wider package on housing affordability. The median dwelling price in Sydney has surged to A$872 300, according to Corelogic, a data provider. Prices in Melbourne have jumped 89% since January 2009, with the median price of a home now A$665 000.

This week, Citigroup chief economist Willem Buiter said Australia was experiencing a “spectacular housing bubble” that required tougher regulations.

However, figures published this week by Corelogic suggest Sydney’s four-year house-price boom may have peaked, with prices falling in May by 1.3% — the first drop in monthly prices since December 2015.

Esther Yong, director of AC property group, which advises Chinese buyers in Australia, said Australian authorities were aggressively devising new laws to turn away foreign investors. “Laws are changing every year in every market very rapidly . . . investors might find it very risky to invest in such a country,” she said.

Research suggests foreign buyers have not had the impact on house prices claimed by many Australian politicians. Foreign demand increased property prices by A$80 to A$122 in Melbourne and Sydney in each quarter from mid-2010 to early 2015, according to a paper published by Australia’s Treasury. That is modest compared with the average quarterly increase in the two cities of A$12 800.

Many economists blame the price boom on a surge in activity among domestic investors, who benefit from generous tax breaks and account for about 40% of all property purchases. — © The Financial Times