The NSW Government has created an easier path for foreign buyers to purchase homes, executing a stunning reversal on aspects of a previous crackdown on foreign property investors.
After a decade of punitive taxes on overseas buyers, the government has officially axed its 9 per cent foreign purchaser duty surcharge for eligible build-to-rent and retirement living mega-developments.
It means foreign investors will now pay less tax on key housing projects.
The move has been welcomed by the development industry, which has lauded the changes as a much-needed boost to housing construction.
Foreign buyers had been a large source of pre-finance for building projects in the 2010s. Picture: Gaye Gerard
Industry figures had long argued that restrictions on foreign buying had starved Sydney’s high-rise construction industry of pre-construction funding traditionally supplied by overseas investors.
Without that upfront global capital, developers haven’t been able to turn the sod on massive apartment projects, leaving Sydney’s housing supply strained.
The Housing Industry Association said the new change fixes what had been a policy “own goal”.
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HIA chief economist Tim Reardon said it was an “important step” toward fixing the state’s flailing residential construction sector.
“Unlike many housing policies that merely reallocate an existing pool of domestic investment, foreign investment increases the total pool of capital available to the Australian economy,” Mr Reardon said.
“For more than a decade, governments have imposed increasingly punitive taxes on foreign investors under the mistaken belief that doing so would improve housing affordability.
The Minns Government removed the taxes on foreign buyers of build-to-rent as part of the state budget. Picture: Nikki Short
“Taxing foreign investment in new housing does not reduce demand. It reduces the amount of capital available to build homes.
“(Foreign investors’) role in the residential market is overwhelmingly concentrated on financing, developing and constructing new housing.
“That is why the NSW decision is so significant. It recognises that housing supply objectives and foreign investor tax settings can be in conflict.”
Juwai IQI managing director Daniel Ho said the reform would help suppliers of build-to-rent accommodation save money.
He explained that it was unlikely that the changes would pit foreign buyers against Australians buying a roof over their heads – instead it would boost rental supply, as well as accommodation for retirees.
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Peter Li from Plus Agency said the changes may tempt foreign investors back. Picture: Sam Ruttyn
“Australia desperately needs new housing construction … NSW has finally decided to let overseas companies invest and build that new supply,” Mr Ho said.
“Foreign capital is actually the dominant source of funding for build-to-rent in Australia.”
The main source of investment in Australia’s build-to-rent projects were groups based in Singapore, the United States, the Netherlands, Canada and the UK, Mr Ho noted.
These investors operated at a different level to individual foreign buyers from countries such as China, which continues to account for the largest share of foreign buying in Australia, Mr Ho added.
“The most obvious Chinese investment in Australian real estate is made by individuals and families,” he said.
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“They buy homes and investment properties for themselves, usually after becoming Australian permanent residents or citizens.”
Peter Li, general manager of project marketing agency Plus Agency, which has sold many properties to foreign buyers, said reducing taxes on foreign buyers had an upside.
“This changes the message that NSW is sending out from ‘You are welcome to invest, but please pay first’ to ‘You’re welcome to invest. Just please build more homes’.
“NSW’s reform will help attract foreign capital to NSW.”
Mr Reardon said many of the taxes and charges on foreign buyers were introduced in previous years as a way of slowing growth in home prices, while raising revenue, but they failed at both goals.
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Sydney remains short of vital housing supply, especially in the build-to-rent sector.
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“When these taxes were introduced a decade ago governments were concerned about foreign investment, vacant dwellings and housing affordability,” he said.
“As better data and analysis shows these concerns to have been fictitious, the policy position also needs to change.
“These taxes were introduced as revenue measures, but there is a growing case that they are revenue negative,” he said.
“When projects do not proceed, governments lose far more than a foreign purchaser surcharge. They lose the GST, payroll tax, income tax and company tax associated with the homes that were never built.”
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