Foreign Buyers article of interest 27-2-2015
The Federal Government is proposing to charge foreign investors a fee to apply to buy an Australian residential property. The fees start from $5,000 for property sold under $1m & increase by increments of up to $10,000 for each additional $1m in property value.
Large fees are also mooted if overseas buyers, or those selling property to them, breach these new rules.
These new proposed fees are a lot less than those originally suggested in last year’s parliamentary inquiry into foreign investment.
The real estate industry has, predictably, slammed the current proposal, which I find quite comical, given that many within the property industry have been arguing (some heatedly with us) that foreigners represent only a tiny proportion of sales & have not materially influenced the market.
Now they are claiming such fees will have a detrimental impact on housing demand, prices & construction.
Well, the property industry has got in wrong on both accounts.
Firstly, foreigners do buy a lot of property – both new & existing, both directly & indirectly – and this is inflating prices beyond the local market’s reach.
It is generating – as was intended – a lot of new housing construction, but it is the wrong product, in the wrong locations & it is too expensive for locals to buy, or provide sensible rental returns & to suit local-based demographic trends.
Secondly, the proposed fees will have little impact on foreign buying across Australia, especially in our larger capitals & in places like the Gold Coast.
I think we will see more overseas buying as a result, as the once-off application isn’t tied to a single property offer. So, an overseas buyer can make numerous offers on many properties using the one application fee.
This application fee will mostly likely just be absorbed in the marketing fees anyway. End prices – now, this is the irony of it all – could actually increase as a result.
Also, this new procedure has just legitimized the purchase of established properties, which isn’t allowed under the current rules.
Plus, the exchange rate is working against us. Our falling dollar against rising overseas currency makes our property cheaper. So what’s another $5,000 or $10,000 as the cost of doing business? Overseas buyers most likely won’t be paying for it in the short to medium terms; the currency exchange will do all the heavy lifting for them.
The fees aren’t anywhere near high enough to slow down offshore buying of our second hand stock.
They should be in the realm of 25% of the purchase price, if you ask us, & in addition, non-resident owners should be slugged with a very hefty land tax, something like 10% of the property value, each year.
But we don’t think this is the answer.
Also, the FIRB, by its own admission, doesn’t have the resources to police such laws. They couldn’t even enforce the existing legislation, which apparently prevents overseas residents from purchasing an established Australian dwelling.
So what do we think?
1. You must have a full Australian passport in order to purchase a second-hand property in Australia. In short, you must be an Australian citizen.
2. Australia must be your permanent place of residence.
3. The past FIRB rules restricting the proportion of overseas buyers in new projects need to be reinstated. This set the allowed limit to 50%. This would at least help to ensure that new projects were designed for an Australian occupant.
4. But an improvement on this would be varying the overseas exposure, depending on location & stage of the construction cycle; thereby reducing supply in times of oversupply, and/or directing construction investment to places that need it.
What do you think?
Linda & Carlos Debello
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