After Gotti’s whinging and moaning (here and here) that new charges on foreign buyers would dampen so-called investment in Australian real estate (and harm sales of apartments by the likes of Harry Triguboff), Florence Chong has offered a useful perspective on the real motivations behind Asian property investment:
Higher government taxes and tougher legislation are unlikely to deter the nouveau riche of Asia seeking to diversify their investment portfolios…
The choice of investment destination will be influenced only partly by financial considerations. For many, the driver goes far deeper than dollars and cents…
Sarah Nicholson, head of international project marketing Asia at CBRE, describes Asian investors as being “shock-proof” because they are used to their governments bringing down successive rounds of cooling measures. What’s more, Australia has a relatively lower purchase cost compared to other parts of the world…
Education and an intention to eventually migrate are the key drivers for buying real estate overseas, according to agents.
Exactly right. Foreigners have never bought into Australian property on price. If they were driven primarily by value, they would likely have avoided Australia’s expensive housing like the plague.
Accordingly, Gotti’s scaremongering over the modest new charges on foreign applications was never credible, and read like rent-seeking lobbying for his mate, Harry Triguboff.
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What’s more, taxing foreigners for housing makes sense precisely because it boosts the welfare of Australian residents, and if anything should be extended to land taxes. As noted by the Australian Treasury recently with regards to a broad-based land tax:
The net transfer of income between foreign and domestic households raises welfare (Chart 28). As detailed above, the total foreign ownership share of factor income from land is estimated to be around 10 per cent. Consistent with that, welfare improves by 10 cents per dollar of net revenue raised. In other words, the broad based land tax change implies a loss of income to the domestic household of 90 cents, while the lump sum transfer increases their income by one dollar, which implies a net income gain of 10 cents.
If Australia is to sell-off its homes/land to foreigners, the least it can do is ensure that it captures more of the rents through the taxation system, thus ensuring that more revenue is available to fund the health, education and infrastructure needs of its citizens.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
