Canberra and Victoria have announced tougher action on foreign purchases of property, including the prospect of JAIL TIME! Not a moment too soon.
I was going to write about Glenn Stevens breaking the Australian intereste rate record for a third time… But Dymphna Boholt beat me to it today.
Read her thoughts here. They’re brilliant!
Now, on to my main essay and rant for the day…
There was a lot of movement on the Foreign Buyer front last week – now everyone’s favourite BBQ stopper.
Abbott laid out the details of tougher FIRB legislation, while Victoria surprised everybody by announcing their own special tax on foreign purchases.
Both are decent policy proposal. Both have probably been a long time coming.
And I would love to say that such good policy is one of the many fruits of self-less and visionary leadership, such as we have from Abbott and Andrews. But I’m too long in the tooth for fairytales.
Rather, I think this policy comes from the golden marriage – the sacred union – of votes and money.
In terms of votes, the pollies were way behind the curve on this one. The public had long since gone to consensus on the fact that the rules around foreign purchases of property needed to be enforced. That’s before any question of what the rules actually were.
But zero prosecutions in six years, amidst one of the biggest foreign property binges in history simply stretched belief too far. Faith in the system was squandered.
And add to that the hot-button topic of affordability for our kids and grandkids (not that I was ever convinced they were in the same market) and you had a political career-maker.
And it was a totally gimme. A lot of people felt very passionately about it. But the only people who might be against it – foreigners breaking Australian law – don’t get a vote anyway.
There’s no losers.
Not only that, we’re potentially talking serious coin.
In Victoria, foreign nationals will now have to pay a new tax equivalent to 3% of the purchase price.
On an $800,000 apartment say, they’ll pay an extra $24,000, in addition to the existing $43,000 in stamp duty.
They’ll also pay 0.5% extra in land tax.
Assuming there’s no displacement of buyers (and who knows), Victoria stands to gain an extra $340 million over four years.
With budgets across the country coming under pressure, that $340 mill will be very welcome.
It wins you votes, it wins you money. What’s not to like?
The only question is why it’s taken so long.
And in some ways its come right in the nick of time.
Because last week we saw confirmation of just how important Chinese buying had become to the Australian property market.
Chinese nationals now spend more on Australian property than any other nationality, ahead of Americans, Canadians and Malaysians.
And it’s positively booming.
In 2012-13 Chinese investment totalled just $5.9 billion, according to Foreign Investment Review Board Report figures.
But in 13/14, just a year later, that figure had jumped to $27.7 billion.
That’s an increase of 360%! In a single year!
And it’s nothing but daylight back to the Americans in second place on $17.5 billion.
So imagine the outcry if we saw these figures on Hungry Hungry Caterpillar foreign demand, with our governments not even attempting to enforce the rules.
In Victoria, the government reported that foreign demand for new properties had surged from 5% in 2011, to more than 30% in 2014.
I had to do a double take when I read that. But that’s what they’re saying. 1 in 3 new houses are being sold to foreigners.
Up from just 1 in 20 three years ago.
There is a boom in foreign buying. Property looks like becoming a major export industry.
And it could have a lot further to run yet. The middle class in China keeps growing. And there’s every chance that China will be forced to open up its capital account in the near term, releasing a flood of money on to global markets.
Now I’ve got no problem with foreign purchases of property. In fact I welcome it. But if we’re surfing a tidal wave, a few checks and balances can’t hurt.
And making sure there’s enough to support the infrastructure around these housing developments is just common sense.
It’s a golden age, so we should be making hay while the sun shines. Because booms don’t last forever.
Just ask the Minerals Council.
And that kind of buying is only sustainable if the Australian public is on side. If they know that it is good for Australia.
And the bare minimum of that exercise in consensus building is making sure that the rules are being followed.
That’s why O’Dwyer’s changes, now wearing the Abbott brand, are welcome. As the Tonester said:
Foreign investment is integral to Australia’s economy and we welcome all investment that is not contrary to our national interest…
We will ensure stronger enforcement of new and existing foreign investment rules by transferring all residential real estate functions to the Australian Taxation Office.
The ATO will use its data-matching systems to identify possible breaches and the Commonwealth will pursue those foreign investors who break the rules.
There will now be stricter penalties to make it easier to pursue foreign investors who breach the rules. Criminal penalties will be increased to $127,500 or three years imprisonment for individuals and to $637,500 for companies.
The Government will also ensure that people who break the rules do not profit by introducing a civil penalty to capture any capital gain made on divestment of a property.
Third parties who knowingly assist a foreign investor to breach the rules will also now be subject to civil and criminal penalties, including fines of $42,500 for individuals and $212,500 for companies.
Australian taxpayers will no longer foot the bill for screening foreign investment application applications. Fees will be levied on all foreign investment applications. For residential properties valued at $1 million or less, foreign investors will pay a fee of $5,000. Higher fees will apply to more expensive residential properties as well as business, agriculture and commercial real estate applications.
But not a moment too soon.
What do you think? Do the new rules go far enough?
Should all the states follow Victoria’s lead? Will 3% deter foreign buyers?