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!
Crikey.
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.
Tough stuff.
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?
dave says
I think the rules are no where tough enough. They need double or triple what they have just done. Myself and my wife have been priced out of the market because of this 1 in 3 foreign buyers. My kids will NEVER own their own home due to the pollies artificially propping up the hosing market and let’s face it.. that is what is the only thing driving the economy right now and mining. (but I hope it all comes crashing down in a big steaming pile of crap and any money my kids have got saved will be able to come in and buy at a lower price) The house across the road from me $510k reserve (Melbourne NE) just sold for $590k to Asian buyers, who knows if they were foreign or not.. but 80k over reserve.. yeah right..give me a break.
vq says
Once they buy 5million of property they can be Australian citizens too. So they may be funded from overseas but are citizens… I was priced out in one area of Melbourne myself. By 50k over asking price! Rents arent high enough to justify it either and the house needed work. I’m not sure how they do it.
Petespace73 says
You ask how do they do it? One word…….. cash!
CM says
The Australian Govt has been lenient for too long. Australians cant buy in China, so why are they allowed to buy here? They come and buy up the primary producing properties, and then cut out all Australian involvement, while they also take the export market away by cutting out the Australian producer. This country will see the dire effects of this type of foreign investment in the decades to come, but by then, it will be all too late!
Philip says
Be careful for what you wish for………..
Rudolf says
Hi Jon
Foreign investment in housing may not be as glorious as some think.
Sure they may now pay some extra taxes and duties, but when combined with all the other foreign investment in our farms, in our commercial properties, in our industrial properties, in our companies, in our communications, our energy generators and retailers, our mining, our infrastructure etc. etc. etc…..it begins to worry me greatly.
They buy our primary products…..eg ore, coal, gas, etc., and then value add, (while manipulating our export prices to maximize their local profits by moving local Aust. profits off shore)…. then sell the goods back to us at more profit, and spend the profit buying us out of house & home…with our own money…..while also destroying our kids future employment potential by supplying/selling us every thing we need at prices we can not locally compete against because their currency is held down and because of manufacturing conditions, hours, & wages intolerable to what we regulate in Australia ……..Believe me….they are not doing us any favours by investing in Australian property………Just wait until their real tidal wave of money really hits us….You ain’t seen nothing yet. When you do….starting to worrying will be too late.
And the cause of it all……..our own greed…. to buy as cheep as possible, demand income beyond our capacity, bring in money & taxes we are not entitled to, and spend future income now.
If 1 in 3 homes are now foreign purchased, then our locally paid for extra infrastructure requirement(paid for by us) will be spent servicing these foreign investments…not servicing us..
Regards
Rudolf
Michelle says
I think you have summed this up just about right! we cannot see beyond our own greed to have more and more and more!!
Disappointed says
Well said Rudolf (also Colin & Mike), I’m glad to see there are a few people who understand what the effect of foreign ownership of Aussie assets will be. The politicians are so greedy and short sighted they would sell Parliament House.
Kat says
The pollies are voted in by the Aussies, are they not?
Rudolf says
Unfortunately most voters do not understand, and vote in whoever will put a extra $ into, or take a $ less out of their pocket, as most can only see today – not tomorrow
Rudolf says
Australia really is the jewel of all land masses on this planet.
If we continue down this ownership path we will eventually become the care takers of Australia according to the rules of those who own it .
sunitho says
Hi Rudolf,
The foreigners buying our coal, iron ore, etc is Australia’s problem … Why can’t/couldn’t we
value add and make steel, why can’t/couldn’t we make actual wood from the precious trees, instead of making them into “chips”, then exporting them for a pittance …. Why are we closing down our manufacturing …..? You see where we are heading?
Soon, Xhina yes Xhina will rule the world, as no developed country will be able to make
anything, they have given away the technology, and we are losing it! Then, one day, who
has the power? Who has the monopoly to hold us to ransom?
Regards,
Sunitho
Charles says
I never see Chinese are housing affordability killer. They spend at least 50 times more in north america. Please be advised that less than 10% of all Chinese emigrants come to Australia, more than 80% move to north America. It is negative gearing and cgt concessions that have priced us out forever. This has to be fixed
DC says
Get a grip Charles, don’t blame investors & CGT concessions for you not owning a home, if it were your priority you would have saved & gone wothout other must have items & be on the way to paying down your home
Charles says
I actually have my home, though not an investor. I just hate the unfair tax schemes
Jason says
Not enough.why are we selling off our greatest asset, land? Why not lease it?
You should not be able to own land outright unless you are an Australian citizen.
But who can argue with the almighty dollar? It’s another quick fix to get money into the country, with long term affects on the next generation.
This planet needs an enema.
Jeff says
1 in 3 new houses are bought by foreigners. Talking about selling our children out big time. There was a report out a year ago that indicated 70% of all new jobs created went to foreigners. Wake up quickly and shut the door fast! It may already be too late.
Raj says
I fail to understand the logic. The “foreigners” are not taking these properties by force,surely. I assume these properties are actually being sold by Australians who are in effect benefitting by getting a higher price than if they sold to the locals ? So why all this hubbub about investors forcing first time buyers out and foreigners forcing locals out? In both cases, Australians are being bnefitted by selling for a profit ,are they not ?
I agree there should be controls on foreigners buying up large areas of land in case they are used for nefarious purposes, which has happened in Australia before. But to blame investors and foreigners for spending money which goes to our fellow aussies, is a bit of a vote-game isn’t it ? If you were selling, would seel to the one paying a bit more or would you sell to someone who may not be able to pay that much just because he is not a foreigner ?
Jeff says
Forcing genuine home owner occupiers to compete against wealthy investors and foreigners will lead to the real social issues down the track. Quality of life in Melbourne has already been on the down spiral for many years. There is nothing wrong with an individual selling to a foreigner- most people would take the highest price. The problem is that the system allows it. Is this foreign property acquisition recipricated? China? Singapore?
Darren Lawther says
Hi we cant buy there they cant buy here simple
Ray Fisher says
Are the 300,000 kiwis that live here pay taxes here going to get another low blow or are they exempt.
DaveVegas Barber says
We can’t buy land n property in asian and other countries…..
So why is it we are selling our land and large amounts of farming land to O/s buyers !
The government is looking at short term gains, wait 20 years when foreign investors own all our companies and all our farms and our houses !
Please wake up
Pippi says
Wake Up Australia Thanks for all the facts & Figures Jon.The property Market in Sydney, should have all these Rules & Regulations applied to it!!! Every square inch of land is being developed by Asian Investors.Next to Major Roads, Freeways, Shopping Malls,& Parks, up go more Monstrosities. Every one crammed in like sardines.Revolting & Depressing to be a witness too. We never were a Greedy, Narcissistic Country,WTF Happened ? In the words of David Byrne, band Talking Heads “.Dont Cram me IN “
Colin says
It is said that we shouldn’t be concerned about China because it doesn’t have a history of going to war outside its immediate vicinity. However look at whats happening in the South China Sea. An enormous land and sea grab by stealth while the locals are fighting amongst themselves as to whether they should give them a slap across the knuckles.
They have been doing the same sort of thing in Africa and other dependent countries. Acquire by stealth and corruption, go hell for leather ignore the environment. Having grabbed it under the radar, engage good lawyer and challenge the legislators to tell them to go away. As we see played out before our eyes, we are so weak and dependent that we acquiesce. My sense is that our “democratic system” is no match for these sorts of tactics.
And so the cycle continues until the aggressors have all but taken control in a bloodless coup.
Jason says
Better teach our kids to speak mandarin, so we know when to bend over and just cop it.
Take a look at our near sited gutless political reps, no match for the military regime slowly taking the country over.
Wonder why a lot of Aussies are racist? Do you think they would put up with Australia town in the middle of China’s major cities?
We are much to accommodating to foreigners who aren’t willing to blend in with this society.
Prayer rooms at theme parks?
Piss off!
Colin says
Having said all the above I feel we, as individuals and as a society, have to accept a good part of the blame as well. Thats because we demand that our standard of living must be continually increasing. This puts the whole system under strain. Yet no realistic graph continues going up without having places to draw a breath and reflect on the next move.
Its at those points we can consolidate, recognise our existence is beholden to what a cyclic world serves up, save and say we don’t need to bow and accept your money and control.
Mike says
We should follow Indonesia’s lead on this where foreigners can only lease a property or purchase up to 49% with an Indonesian national. But never own outright property in that county. It is dangerous what we are doing here and in 50 years I think Australians will look back and regret it.
david says
The taxes shud be higher !!! Chinese are stil laughin at Aus laws compate to Chinese laws. Weak n many loopholes. To them these taxes a spare change tk the millionaires of China. They buy n go home….!
Bill says
Haven’t we had foreign buyers before? This is not new. Asian buyers maybe buying a bolt hole in real-estate. Those buying a farm or a resource company will often need to pour in resources to make it more efficient, this has happened before and will continue to do so. If Asia is making so much money then that is where we should be looking to invest ourselves. Past Governments (of both persuasions) policy has not kept up the development of infrastructure and we have slowly let our costs rise, to the degree that we are uncompetitive unless you want to keep paying manufacturers to produce things. Just look at the time lost in traffic in Sydney. Large rural towns with traffic problems are becoming a feature. Sure technology will help reverse this but we have a few more years of development to go. Our economy is a product of our democratic system as much as anything, we voted for this to happen.
Look at China they have plans for a massive build up in infrastructure into Europe, that will stand them in good stead for decades to come, if they are successful. The west does not have to stand by, it can join them, its just that we choose not to because it is easier.
Not only that they are investing in Africa as they see 50 years down the road that will be another power house and are building bigger ports, faster rail and bigger airports, all the things to make business fast and efficient. They have a few natural resources of their own as well.
Our banking system is out of kilter and suffers from centralised control look at Germany’s bursting economy a lot of small banks investing locally. Our 4 bank policy is a disaster, and more we load up small banks with different requirements to our large banks where is the level playing field even in our own economy?. We keep shooting ourselves in the foot.
Our welfare system is being blamed with an aging population. In the US wages are terribly low and their expansion of debt does not seem to be working. The inequality of incomes is growing as it is in Australia. We (US in particular) seem to be setting themselves up for GFC mark 3 which has the indicators of turning into another Japan 25 -30 years (and growing) of no growth (if not another depression) because they are not getting a return on the trillions of dollars they have pumped in in QE, but have managed to inflate real estate and equities, but employment is stagnant and company profits are weak.
China has its own monetary problems and clarity is a bit hard to gauge because they have so many shadows. Their workers wages are growing and workers are beginning to get better conditions and they have worker problems from their one child policy as they age.
Could China they if successful (in getting lower transport costs into Europe) continue to buy resources from Australia well into the future. It was naïve of us to believe that the sky is always blue and treasury got predictions horribly wrong. We should look at our Government and their processes. We need better reporting and more openness and accountability from our Pollies.
Our education is 30 years behind the times and damaging to Australians. We should be learning more about our Asian neighbours and their customs if we want to do business with them, we are handing control to others by default because we are to short sighted in our approach.
I think you have had enough of me.
Bill.
solmon52 says
Colin you are right and it has gone on for to long. I personally know agencies in sydney that have supported these illegal purchases of established housing and these people have huge business income in china and not paying tax here. They pay what we pay, ten percent GST.
I also know many living here have property in china all rented and the money staying in china for holidays and to bring back as cash to the legal amount. They send one person home each 3 months. Bring back 10,000 thee legal amount and this happens 3 to four times a year with each family member. These are the small fry. And to make me sick in the guts these people are living on our social welfare because they argue they cant speak english enough to get a good job so volunteer a few hours per week.
Some older mid 50s ladies owned the house the deceased husband give them. Sell the house. Buy a new one in the kids names and we get wacked again. No gift taxes declared and mum lives with the kids and gets the social welfare.
Huge operation in sunnybank in queensland. How much more in other states.
emily says
The foreign stamp duty levy is very unfair on married couples waiting for final pr decision. My husband and I who have been in visa process over 3 years and now forced to wait 13 to 15 months for final pr decision will have to pay 7 % of his share of loan on our first home buy. He is a fulltime employee in australia already paying australian tax. We are a struggling young couple and believe this extra 7 % levy is extremely unfair. To wait another 9 months for a decision on pr also means property costs will go up so we lose out if we wait too.
unhappy aust born citizen says
This levy is unfair to married couples waiting permanent partner residency decisions. What was only a few years ago a decision made after 2 years of waiting has now been extended to a further 16 month wait from australian immigration. My husband has a fulltime job in australia and pays taxes here. We are first time home buyers and are being unfairly penalised by a 7% extra levy on cost of appartment we want to buy. The govt claims this money is to tax foreign buyers who do not contribute tax to australia. Yes, we could wait another year to buy for when he receives permanent residency but house prices go up as well.