Victoria doubles foreign buyer stamp duty

From Tim Pallas:

The Andrews Labor Government is taking action to ensure foreign buyers of residential real estate contribute their fair share to the liveability of our state.

It is only fair that foreign buyers – who do not pay taxes such as payroll tax and GST – fairly contributed to the maintenance and development of government services and infrastructure, just like Victorian taxpayers do.

The 2016/17 Victorian Budget will increase the stamp duty surcharge on foreign buyers of residential real estate from 3 per cent to 7 per cent, and apply to contracts signed on or after 1 July 2016.

The land tax surcharge on absentee owners will also rise from 0.5 per cent to 1.5 per cent from the 2017 land tax year.

No Victorians will pay these surcharges.

There have been sustained and strong levels of foreign purchasing of residential real estate in recent years. This increase will ensure a fair and equitable contribution is made by foreign purchasers of Victorian real estate.

Victoria’s surcharges on foreign owners of residential real estate have been in operation since 1 July 2015 and have had little impact on foreign demand for Victorian dwellings.

The measures are expected to raise $486 million over the next four years.

Quotes attributable to Treasurer Tim Pallas

“No Victorians will pay these surcharges. This is about ensuring foreign owners pay their fair share.”

“It’s only fair that foreign buyers of residential real estate, who enjoy the capital growth as a result of Victoria’s liveability and the amenity of our cities, contribute to the maintenance of government services and infrastructure.”

“Since we introduced these surcharges last year, there has continued to be a welcome and steady stream of foreign interest in our residential real estate. The surcharges ensure that buyers will continue to benefit from the best services and infrastructure.”

Excellent policy, helping tax gains accrue to wider services for Victorians. The move to a vacancy tax is also excellent and should be boosted further to lean against foreign domiciled land banking. There is a question over implementation given it’s not easy to determine vacancy, perhaps utility usage will be used.

Nonetheless, well done and other states should follow.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. Only 7%?
    “Hong Kong has introduced a 15 per cent tax on foreign buyers.. rival city Singapore introduced a 10 per cent additional stamp duty for foreign buyers.” (2012)

      • Hold on, I thought foreign investors could only buy off the plan properties… And there are no stamp duties on off the plan purchases… So how are we even collecting stamp duties off foreign investors exactly?

    • GunnamattaMEMBER

      That was my thought Janet. I would have thought 20% would be reasonable……..

      i am hoping for an empty abode rates surcharge from local councils too. Maybe a 50% loading on that one.

    • Josh MoorreesMEMBER

      this might be a stupid question but given we can’t actually identify foreign buyers to prevent them making illegal purchases how are we going to know who to charge this to?

      • tripsterMEMBER

        Precisely what I was thinking. If they are already concealing the fact that they are foreign when buying existing properties (such as by using a local permanent residency holder proxy), this could actually operate as an incentive for them to further conceal their foreigness!

      • LabrynthMEMBER

        @ Josh

        This now gives the state the incentive to enforce their own law. I.E on the conveyancing proof of identity must now be supplied. This could nullify any need for the FIRB if the state government makes one little change to the process….

      • Josh MoorreesMEMBER

        perhaps, I’ll believe it when I see it. I’m pretty sure personal interest for their own property holdings will outweigh any concern about government budgets I think. And lets face it, pollies at all levels know what’s going on.

    • – Conceptually – this sounds like excellent policy.
      – BUT – isn’t this going to exacerbate the Great Melbourne Apartment Bust of 2017-18?
      – Could this have flow-on effects for the rest of the property market?
      – And the Victorian government’s revenue from stamp duty?
      – After wasting $1bn ($200 for every person living in Victoria) cancelling a freeway – the jury is still out on the economic competence of the current Victorian Labor government
      – Look out for the great Victorian recession of 2017-18?
      – The 1890ies could be a good precedent.

  2. Wow! I shouldn’t be impressed by a sensible policy but jeez, apart from Federal Labor and the Greens recently, they have been a rare bird in our political environment.

  3. So until NSW acts there is going to be an influx of Foreign Investors buying in Sydney after the 1 July deadline?

    It will bring forward demand immesnley watch the median house price which dropped from $1m go to $1.1m!!

  4. boom, and just like that the illegal purchase of existing dwellings stops in Victoria. Ask yourself if as a potential foreign buyer (or launderer) why you wouldn’t move on to another easier jurisdiction, like NSW or British Columbia
    It will be interesting to see what happens in Melbourne for existing dwellings if that marginal incremental market distorting bid does indeed move elsewhere.
    Dare I say it the ATO enforcement section (FIRB) is now probably off the hook.
    Fingers crossed that we are getting back to a level playing field.

    • If they can’t currently track these people, how will they levy the duty?

      Love to see the budgeted stamp duty for this for FY17.

      • Extra $476m over 4yrs according to the blurb
        I’d love to know where they get that number from

      • @Pat pretty sure they lick their finger stick it in the air and come up with a number depending on which way the wind blows.

  5. Great move but its only 4% increase and i don’t think that buyers will run scrambling to buy in Sydney just because of this increase since the median house price between Melbourne and Sydney is still pretty steep…

    • Are you kidding me? 3% of $1,000,000 is $30k. 7% of $1,000,000 is $70k.

      $40k is big money. With a leverage of 60% for your average foreign buyer it means they can spend an extra $240k in spending power, or more in lost spending power if you are on a budget.

      • Median house price in Melbourne is 700k, 4% of that is 28K so to simplify things you are making the median house price for foreigners more expensive by 28k in Melbourne. Not saying its not big money but adding 28k over your budget is probably feasible for most buyers in contrast to 1 million dollar median house in Sydney.

      • @PaulF any money directed to stamp duty is taken away as a part of the deposit which is leveraged on. This is a massive move, if the buyer has a budget.

        The budget investors will be hit and the rich ones will go to Sydney and stick the bird up at the VIC State government.

    • Actually, its a 133% increase. This will absolutely impact the marginal buyers…and we all know prices are set at the margin.

  6. Good news but let’s face it, it will be reversed when the poop hits the aerator and we start offering first-foreign-money-speculator/launderer-grants to prop up an imploding market.

    Up now.

    Down, down later.

    L E A … awwwww…yawn.

    • I can guarantee we’ll be begging all the foreigners to come back as time moves on. Selling them dogboxes in the sky is one of the few export industries left in this country. Unfortunately, it too will fall in a heap as it did in the past with the Japs.

  7. Incredible….respect to these politicians, policy for the good of its people. Wow wow wow wow wow.

    I often argue that foreign investors riding the boom and stashing dodgy cash in OZ property did not contribute to the infrastructure and society that makes the place liveable etc – so why should they be allowed to participate. Seems policy is reflecting that finally.

  8. TailorTrashMEMBER

    Not to worry ………Still plenty of straya to sell yet ………note that the gutless pair of MT and scomo are putting off the decision until after the election ……….running scared of Jonesy hitting the airwaves on another sell off …………..and I’m afraid we can be pretty sure what the decision will be ……..on the other side Penny Wong is pushing this as good Foreign investment …..can never understand why our politicians can not see the difference between investment and ownership …..foreigners don’t need to own our land to invest in enterprises being run on it ……………what’s wrong with returning Kidman to the crown and leasing it out ……..( the government could borrow the money from CBA at “competitive interest rates ” …perhaps the Chinese company is already planning to do that )……..http://ab.co/1NClOs4

    • Totally agree you don’t sell assets you lease them. Unless you’re trying to plug a defeceit black hole…

  9. One of the key considerations in policy adjustments to dampen the land bubble has been to avoid being dubbed the catalyst for a price collapse. Vic Treasurer Tim Pallas has no such reservations.

    There are two parts to this announcement. The second is the one that matters:

    “The land tax surcharge on absentee owners will also rise from 0.5 per cent to 1.5 per cent from the 2017 land tax year.”

    will oblige a full recalculation by foreign landowners of their investments in Victoria. The deeply desired ‘perpetual title’ comes at a real cost – to those who would spend Australia’s economic rents in London, New York or Hong Kong

    Really, really: Don’t Buy Now!

  10. How many Victorian dwellings have been purchased by foreign nationals since 1 July 2015?

    • And how many after the 1st July 2016? Same answer. This is great policy but unenforceable until some very, very simple processes and checks are in place.

  11. Does this mean the State Land Titles Office will be recording Visa Non-Resident eligibility?
    Obvious implication being they should also record Temporary Resident eligibility and date driven notification to dispose of property.

    Vacancy may best be determined by a combination of evidence which together would demonstrate a contradiction if not in alignment; such as utility usage and demonstration of a lease agreement so it’s harder to game by deliberately leaving taps dripping or fraudulent lease forms on their own.

    • +1 At what point of the transfer of title process does the Vic titles registry require proof of purchasers residency status?

    • adelaide_economist

      Good call Aaron – I had a similar thought, thinking of a cottage industry springing up of absentee landlords hiring cash poor students to regularly visit properties to turn the taps on for a few hours. Let’s hope the massive amount of computerisation and linking of databases going on can be put to a good use to scuttle these inevitable workarounds.

      • Terror Australis

        Or some propeller heads build and sell some device to run the water/ turn on your power remotely and at randomly staggered intervals. Not exactly science fiction.

      • Hopefully they will also use their fancy new data matching computer to cross reference when owners & family are in the country to help spot any false claims. Through I can’t help but think enforcement will be nigh on impossible given current data.

      • That’s a huge amount of effort to go to to try and make a property appear occupied. If a tax is levied on vacant housing I suspect path of lease resistance is to rent them out. Surely a few will try skirt the rules for whatever reason but expect a flood of rentals to become available soon. Especially inner Melbourne CBD.

  12. How many “foreign buyer surcharges” have been imposed by the Vic govt since 1 July 2015 when they were introduced?

    • The VIC budget comes out next week. Hopefully they have a box or a section talking about it.

  13. Good policy at last! The feds should take a leaf out of the Victorian Government’s book and do something similar. If all the states followed suit then it would pressure MT into some sort of action. Interesting that economic initiatives seem to be coming from the left side of politics.

  14. SchillersMEMBER

    Re. Victorian land tax surcharge.
    The absentee owners charge only applies to foreigners. If you are an Australian citizen or a permanent resident or a Kiwi on 444 visa, then the vacancy or absentee owner’s charge does not apply, regardless of whether your properties are vacant or not. Also, foreigners who hold any sort of temporary residence visa are exempt.

    • ‘Also, foreigners who hold any sort of temporary residence visa are exempt.’

      Ah, there’s the loophole. I agree with the Patrician. At this point any policy is only as reliable as its enforcement can be proven. Otherwise its just words on paper.

    • It seems like every level of government in this country goes to great lengths to bend the average Australian over and stick it to them, yet non Australians are awash with exemptions.

  15. So the Vics have been collecting this surcharge for the last 10 months.
    Where is the data?
    How many surcharges have been collected?

  16. WA’s LNP government charges the kids of 457 visa workers $4000/kid to study at a government school.

    Vic should charge the same.

  17. SchillersMEMBER

    As of 1.7.2015 the Victorian State Revenue Office requires all transferees (buyers) of property to sign and submit a Form 62 Purchaser Statement. This form documents the nationality or citizenship status of all buyers of all property and land within the state. It enables the SRO to identify whether the buyer/transferee “is a foreign purchaser of residential property as an additional duty of 3 per cent will apply to these transactions.” The form looks thorough. It includes separate sections for property bought by foreign corporations and trusts. Individuals must give chapter and verse including name, address, country of citizenship, dob, phone and email contacts, etc.
    Essentially, the transfer of title does not go through unless and until the SRO delivers a stamp duty bill to the buyer. From 1.7.2015 this only happens if the buyer has filled out a Form 62. It applies to all buyers and all sales of property, whether to Australian or foreign citizens.
    This is interesting…
    “The information collected may be used for the purposes of other SRO legislation. Where authorised to do so, we may also disclose this information to other government agencies, including FIRB, the ATO, state and territory revenue offices and law enforcement agencies.”
    Here is the link for the form:
    http://www.sro.vic.gov.au/sites/default/files/Duties-Form-62_3.pdf

    • SchillersMEMBER

      The one obvious thing that’s missing from this new Vic gov form 62 is a FIRB approval number for the purchase of the property by foreigners. No FIRB approval number on the form, then no stamp duty bill from the SRO. No stamp duty certificate then no transfer of title from the State titles office. i.e. NO SALE.

      It’s not rocket science.

      If Australian permanent resident “proxies” want to buy property in their own names, then so be it. As soon as they try and transfer ownership to a foreigner, the Form 62 rules kick in. I like it.

      • “It’s not rocket science.”

        Bingo

        Require proof of purchasers FIRB compliant residency status/approval to transfer title

        No proof. No Title.

        Fixed

      • So what will happens if a foreigner wins a hotly contested auction and doesn’t have FIRB approval?

        Will the auction be re run? Does the vendor have the right to sue the winning foreign bidder? Will the real estate agent take any responsibility for their incompetence in clarifying these rules prior to bidding.

        Would be interesting to see how a situation like this plays out

  18. I wonder what happens when all the foreign buyers pack up and leave? Anyone in the 90’s would remember how bad the economy of OZ was doing. Quality of life was way worst then, compared to now.

    • Mbreader, that is not true, at least for most folks as they were in more stable jobs and there incomes were much more conducive to the purchase of homes and anything else. Add to that the fact no where near the population congestion existed and therefore productivity higher, I could go on.
      If your fearful of a major impact here, I’d disagree unless all other states and territories implement also.
      Much more to be done yet!

    • Mining BoganMEMBER

      Nah. Australia was a much nicer place to live in the 90s. Early 90s anyway. Folk weren’t as obsessed with wealth and ‘stuff’. There was a sense of community then that is now missing. Selfishness took its place.

      That all started to change in the late 90s and it’s been downhill ever since.

      • drsmithyMEMBER

        That all started to change in the late 90s and it’s been downhill ever since.

        March 11, 1996, to be precise.

  19. Surely this is meaningless without enforcement, which as we all know is severely lacking in our regulators. No doubt it will increase the use of local proxies to circumvent the requirements. Unless of course the ATO starts going after some of the local proxies for all their apparent undeclared income, which is unlikely.

    I guess time will tell but I have little faith we will actually see any genuine action, just the usual political rhetoric.

  20. In the interests of maintaining new dwelling supply it would be helpful if the surcharge was restricted to foreign purchases of existing dwellings

  21. wasabinatorMEMBER

    “and apply to contracts signed on or after 1 July 2016”

    Written on billboards all around Shanghai, along with a extra flights via Air China to cater for the surge in demand before the deadline closes. After this point, some crafty backdating of documents will no doubt occur as well.

  22. Idiocy.
    If we exported a commodore would we insit on an extra stamp duty?
    Would we tax them if they didn’t drive it?
    Selling brand new apartments and houses to foreigners is an export industry employing thousands of Australians in the supply chain from digging up the clay, sand, etc through brickmaking, making cement, then all the trades involved in construction, the transport of the materials.
    All that export driven employment is about to stop in Victoria.
    The stupidity of Labor!
    There is no shortage of available housing other than because of the rationing of zoning and land controlled by government. This change is the most stupid tax I’ve ever heard of.

      • Does that change the relevance or quality of my comment?
        If it’s a crap comment tell me why!
        If it’s a good comment give me a +1 or +100
        Please note my comment only applies to new builds, not existing houses/apartments.
        Many in this blog argued that negative gearing and capital gains tax disounts ought only apply to new builds because of the employment creation. Similar situation in my view.

    • “This change is the most stupid tax I’ve ever heard of.”

      While it isn’t the best tax it’s a long way off the most stupid tax.

    • it’s not an export for starters. Do you consider a foreigner buying a government bond an export? No you wouldn’t and its the same concept.
      Besides the stamp is only due on the land value for new builds, so all in all hardly a massive detriment to a foreign investor. Also who is to say that this stays at this level for new builds in the future? The good thing once it place with an infrastructure for its collection you can alter it to increase or decrease incentives.

      • Travis, think about it a bit more. A foreigner who has no right to residency is buying a newly built apartment or house. If we sent it to China it would be an export, but you are right technically it is not exported as it stays here. But look at the whole process from start to finish. Most of the work is done in Australia from the design, approvals, digging up the raw materials, growing the timber etc. Yes the appliances and finishes and some furnishings may be imported but in the overall cost they are probably say 10%. Nearly everything else, including all the services that make the land valuable are provided from Australian labour. (eg kerbing, guttering, sewer, water, electricity). So when all this consolidated Australian labour and materials are sold to a foreigner this helps us earn money from overseas, just like if we exported a Commodore. The difference is that it stays here and we can control it, unlike a commodore exported to China. You can add a layer of complication for financing, and you can add a layer of complication when foreign 457 visa holders do some of the labour (but then they spend most of their wages in Australia). If, as many people allege here, the property is bought with cash (ie no financing, but obviously the AUD to complete would have been bought with eg USD) then the financing layer of complication is a different one.
        The overall point though is that when a newly built apartment is bought in Australia by someone who lives overseas we are effectively in the same position as if we delivered the apartment to them in Shanghai in terms of the benefits retained in Australia from the resources and labour involved in the whole process. That is why it is effectively an export.

        I agree that a foreigners purchase of a bond is not an export as there is virtually no resource or labour content in it. The purchase by foreigners of bonds has different benefits and disadvantages.

      • TailorTrashMEMBER

        “The difference is that it stays here and we can control it, unlike a commodore exported to China”…………….and that may be the problem ……………
        When you export a commodore to China they have their commodore in China and they own it …..and we have our factory in Australia and we own it ……….when you export an apartment and its attendant land the Chinese have a claim on that apartment and its attendant land situated in your country ……….

        The PLA is in the process of modernising with the stated aim to defend and protect Chinese intrests “where ever they are” . Now are thousands of exported apartments owned by Chinese nationals not a Chinese interest and long term can we really control them …..maybe ………but I would venture that what Australia is doing is not entirely wise ………but I could be wrong……….

      • Explorer, your drawn bow is far too long. I have really thought about this just in case you are in doubt. The reason why I take interest in the comment is that there is a lot of emotion wrapped up in the word “export”. You’ve pulled it out to win an argument with a knockout punch: “who’d dare argue against good honest export dollars being earned by the country, you’d have to be a mongrel to disagree!”
        Also the argument you have posited seems to me to have its origin in the main stream media and is taken the form of a regurgitation, rather original thought (no offence, honest).
        The fact is its not an export. The reason is illustrated by these points, amongst countless others that could have been used:
        (1) on your argument if a local legal entity eg. company, bought the property, regardless of the nationality of the shareholders eg. chinese and/or australian it wouldn’t classify as an export because the immediate owner is Australian. Really why does the owner’s nationality make the deciding factor? You’ll say origin of the purchasing funds no doubt, well what if the foreigner is financed by Westpac and Westpac’s financing was from local depositors or a MBS bought by AMP? Still an export?

        (2) This is the main one and probably worth some thought. Exports are distinct because they are goods or services from which the “income” when it is earned here in Australia it stays here permanently to improve the country’s stock of capital. Conversely, the purchase of property by a foreigner is a “capital” flow in at the time of purchase and upon disposal of the property becomes a “capital” flow out of the country. So when its all said and done no monies are left here at all. See the distinction? Exports = funds stay here forever v Capital purchase where foreign funds leave once disposal occurs. Surely that can not be misunderstood by yourself?
        Less emotion pls

      • Even if you consider these apartments as “exports” (which I personal don’t), the problem is that these sales to foreigners create a negative economical externality in that the overpriced sale price causes a contagion effect on other Victorian properties for sale because it sets a precedent that all future property vendors expect their real estate agent to meet. This then has the effect of FHB being priced out of the market.

      • As I explained in my response to Travis above, it has most of the features of an export. Think back through the whole process of how land gets developed with services and the materials are sourced using labour all the way through the supply chain and then more labour is used in the building and sale and registration and perhaps the financing and legals. In a practical sense selling a new apartment or house to a foreigner is effectively an export.

  23. I have had my MB suscription cut short today saying it has expired even though it is auto renewing and paid until August. Anyone else having same problem??

  24. Let’s wait for the investor/state provisions of the TPP to be settled before we get too happy.