Foreigners hoover-up 11% of NSW home sales

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By Leith van Onselen

As Sydney home values continue to hyper-inflate:

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A Freedom of Information (FOI) request has revealed that foreign buyers have hoovered-up 11% of home sales. From The AFR:

Figures released under Freedom of Information laws from the NSW Office of State Revenue show that foreign nationals accounted for 11 percent of the 28,141 residential homes purchased in NSW from July to September last year.

Chinese purchased over 32 percent of those properties, followed by British and New Zealanders at 10 percent each and Indians at 6 percent. (Some of the best houses are being sold on Chinese social medai site WeChat.)

The figures reflect the period after the June budget when the NSW government imposed a 4 percent surcharge on stamp duty for property purchases by foreigners and a 0.75 percent land tax surcharge…

The NSW Opposition which obtained the information has called on the NSW government to raise property taxes for foreign buyers even, higher lifting the surcharge on stamp duty to 7 percent and lifting the annual land tax surcharge from the current level to 1.5 percent.

By comparison, NSW first home buyers accounted for just 7.5% of sales.

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Surely the federal government must also take concerted policy action to stem the flow of foreigners inflating Sydney home values.

As noted yesterday, Scott Morrison’s most recent “crackdown” on illegal foreign buyers of Australian residential property revealed that “the ATO has issued 388 penalty notices to foreign nationals in breach of the rules, attracting penalties of more than $2 million”.

Thus, the average fine issued under this “crackdown” was just over $5,000, with the total in fines less than the cost of two median priced Sydney houses. In other words – chump change – and certainly no meaningful deterrent to illegally purchasing a home or assisting an illegal sale. So, the government should immediately bolster enforcement of the foreign investment regime.

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The federal government must also extend the anti-money laundering (AML) rules to real estate gate keepers, including realtors, lawyers and accountants.

These “second tranche” of AML rules have been in limbo since the federal government first promised to bring them into the regulatory net in 2003, and were recently deferred indefinitely by the Turnbull Government. This came despite explicit criticism from the global regulator, the Paris-based Financial Action Taskforce, that Australian homes are a haven for laundered funds, particularly from China, as well as similar warnings from Austrac.

The end result is that realtors, lawyers, accountants and other real estate gate keepers are currently exempted from AML requirements. And this exemption has provided an easy avenue for foreign buyers to launder funds through Australian property.

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Perversely, if somebody wants to set up an account to place a $100 bet at Sportsbet, or invest $1,000 into a managed fund, then they must provide sufficient identification under the AML Act. But if they want to launder millions of dollars through an Australian home, few questions are asked. It makes absolutely no sense.

The obvious conclusion from this policy malfeasance is that the Australian Government is tacitly complicit with the dirty foreign money flooding into Australian property. The Coalition has already shown its hand in deferring the implementation of the second tranche. But Labor and The Greens have also been conspicuously silent on the whole AML issue.

In the meantime, dodgy money continues to pile into Australian property, to the chagrin of the global AML regulator, the Financial Action Taskforce (FATF). In the process, young Australians are being priced-out of home ownership.

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This farce has dragged on far too long. Our politicians simply must end more than a decade of neglect and bring Australia’s real estate gatekeepers into the AML net – as demanded by FATF and Austrac, promised by the federal government in 2003, and intended when the AML legislation was first drafted in 2006.

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About the author
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.