The Australian state of New South Wales is moving to crack down on foreign home ownership in an attempt to address the intensifying housing crisis in Sydney. Prices are ever on the increase – in part because of increased foreign investment into the market – and the government is taking steps to stabilize prices with a number of new taxes and regulations.
Home prices in Sydney have doubled since 2009. The current median home price in the city is now a staggering A$872,300. While home prices have risen across Australia since 2009, the increase in Sydney has far outpaced price increases in major cities throughout the rest of the country. While Sydney saw over a 100 percent increase in home prices, other major cities saw prices increase just a fraction of that. For example, prices in Canberra, Brisbane, Adelaide, and Perth increased roughly 35 percent, 15 percent, 20 percent, and 5 percent, respectively.
The city, which is the capital of New South Wales and the most populous city in Australia, has seen a significant rise in rates of foreign buying. This foreign buying – mainly attributed to an increase in buyers from China – has fuelled a property boom. All in all, investments into Australian property from mainland China totaled over A$30 billion between 2015 and 2016, up by almost one-third from the amount investment between 2013 and 2014. In total, Chinese investments constituted roughly 25 percent of all foreign investment approvals for property in 2016. This has led to dramatic increases in prices that have left many Australians, particularly first-time homebuyers, locked out of the market.
In spite of high levels of investment, many of these foreign investors don’t actually live in or even rent out the properties that they buy. Many investors, particularly those from mainland China, are just looking for an easy way to stash cash abroad – and property provides the perfect vehicle to do so. This restricts availability and further drives up prices both in terms of renting and buying.
To address the issue, Australia’s federal government instituted what is known as a “ghost tax.” This is essentially a charge on owners who either leave their properties vacant or unavailable for rent for six months or more at a time. The plan is that the increased government revenues from the tax, which amounts to A$5,000 (US$3,700) per a year for homeowners, will be used to fund affordable housing and to provide first-time home buyers with much-needed tax relief.
“I want to ensure that owning a home is not out of reach for people in NSW,” Gladys Berejiklian, the New South Wales premier, told the Financial Times. “I am confident these measures will make a difference and allow us to meet the housing challenge.”
In addition to the ghost tax, New South Wales is also taking a number of other measures to increase the cost of foreign home ownership in the state. For example, the state is raising stamp duty charges from the current 4 percent rate to 8 percent for all foreign buyers. Domestic investors, meanwhile, will not longer be required to pay any stamp duty collection. Moreover, what is known as the “land tax surcharge” that is currently levied on foreign homeowners is also set to increase from just 0.75 percent to 2 percent. There is speculation that there may even be more regulations coming down the pipeline to further deter foreign investors from purchasing property in Australia.
Interestingly, Australia isn’t the only country struggling to deal with astronomic property price increases driven by a surge in Chinese buying. As mainland Chinese investment into international real estate continues to steadily increase, jurisdictions like Canada, Hong Kong, and Singapore are also struggling to cope with Chinese investment into the housing market.