Pitfalls piling up for investments in Australian housing

REAL estate investment in Australia is about to become a lot more expensive. The state government in Sydney is set to become the latest to impose foreign investor surcharges on stamp duty and land tax on residential properties later this week. Earlier this year, the state government in Melbourne raised the surcharge for foreign buyers of residential property from 3 per cent to 7 per cent from July 1. The Queensland government in Brisbane has also imposed a 3 per cent transfer duty surcharge.

The official reason being given for the new taxes is that the state administrations are trying to ensure that the local buyers are not priced out of the markets. To be sure, there is some basis for this claim. Developers sometimes market their projects overseas without even bothering to interest locals. But it must also be noted that the foreign buyer is also seen as a cash cow to be milked for all its worth to fill the treasury coffers at no political cost. Indeed, foreign investment in Australian real estate represents almost 45 per cent of all foreign investment in the country. A record A$60.7 billion (S$60.9 billion) poured into Australian real estate in 2015 and it represents about 25 per cent of all property development in the country.

In Sydney, the additional levies are estimated to generate A$262 million in the next financial year and more than A$1 billion over the next four years. The Melbourne authorities think that the new taxes will deliver an additional A$486 million in revenue over the next four years. No wonder these state governments all think that they are on to a good thing. After all, inner city apartments in Sydney and Melbourne are, by far, the most sought-after investment by foreign investors. Many of these developments are often sold off the plan at glitzy sales campaigns overseas where developers think that potential buyers are waiting with open wallets.