Victoria has announced plans to slug foreign buyers with extra fees, but it looks like the horse might have already bolted.
The Victorian state government has announced that it will increase the stamp duty surcharge on foreign buyers from 3 to 7%. That is foreign buyers will pay the regular stamp-duty, plus 7%.
Is it a big deal? Is it going to move the market? Are will strangling the golden goose? I’ve had a few questions, so here are a few thoughts.
First up, 7% is not chicken feed.
To put it in perspective, an Aussie citizen buying a $700,000 home in Victoria would pay stamp duty of $37,070. A foreigner buying today would pay $58,070. A foreigner buying after 1 July 2016 will pay $86,070.
So they’re looking at stamp duty bill coming in at a bit of 12% or the purchase price.
That would leave a sting in my wallet, but what matters for market movements is the increment – it’s the move from 58K to 86K.
That’s an extra 28K. It’s not so massive, especially when you remember that foreigners could lose or pick that up in exchange rate movements from one month to another.
So to my mind, I’d be surprised if this measure moves the market in any way that we’ll be able to pick up in the data.
And the truth of it is that foreign buying has already started waning.
According to FIRB (Foreign Investment Review Board) data, there has been an explosion of real estate applications in the past couple of years.
The latest count if for the 14/15 financial year. It shows that approvals have tripled since 2012/13.
It’s a big story.
Breaking it down, we can see that most of these approvals are going into new dwellings, and a good share of those are probably going into high-rise apartments in the capitals.
But the official data only tell us so much. For starters, this data is almost a year old now, and we don’t have any data on unofficial (illegal) purchases of existing property. We know that until late last year, FIRB was barely taking an interest in illegal purchases.
So to get a better idea, we need to go to the NAB survey data – though it’s not perfect either.
Here, we can see the run up in foreign purchases. There’s been strong growth in new purchases, but the survey shows there’s been a ramp up in purchases of existing property as well.
In 2014, foreign buying accounted for 10% of sales in the existing home market.
It’s supposed to be zero (with room for some special exceptions).
However, since peaking in 2014, foreign buying seems to be slowing, both in the new and existing property markets.
The foreign share of new purchases is down from 17% to 12%. The foreign frenzy seems to be cooling of its own accord.
And there’s some interesting stories if you look at the state-by-state data.
With new dwellings, foreign buying has slowed quite dramatically in Victoria, and noticeably in NSW and WA.
Victoria peaked back in Q4 2015, so Victoria’s new measures are going to impact on a market that had already started slowing. They may accelerate that slowing, but it will be hard to pick out.
The horse has already bolted.
However, the interesting thing here is that Brisbane has started picking up some of the slack, and foreigners now account for over 20% of new property sales – that’s one in five.
Looking at existing sales, there’s another interesting story there. We can see the slow down in Sydney and Melbourne, and in Brisbane now too. However, foreign buying is actually accelerating in Perth.
With 9% of existing home sales going to foreigners, Perth now leads the country.
Give Perth’s property market has slowed in recent times, makes you wonder what would of happened if FIRB had been doing its job and there were no foreign purchases…
Anyway, looks like foreign buying has already started to cool. That’s probably driven by our government taking an increased interest, and our banks making it a little harder for foreigners to access credit.
But I suspect the big story here is the Chinese government’s recent crack down on capital outflows. They’ve made it a lot harder to get money out of the country.
And what we hear is that the reason why so many Chinese nationals are interested in Australian property is because they’re afraid of having their money trapped in China if things go sour.
It’s about protecting their wealth. That’s why they’re not so fussed about growth and yield prospects, or are even happy to leave their properties empty.
In that sense, I don’t think a bit extra on the stamp duty is going to faze them.
And so I think this levy increase is a good idea. The Australian property market has been a solid performer precisely because we have a strong rule of law and good public services.
But if everyone all over the world starts using it as a place to park their money, then that starts to mess with the market, and with the fabric and make-up of our cities.
So a bit of a fee for the privilege – to balance it out and preserve the standards that have made Australian property so great – is no bad thing in my books.
How do you think this will affect where people invest?
What do you see as the obvious growth cities to come out best from this?