NSW’s recent crackdown on foreign buyers, aimed at tackling housing affordability, may be self-defeating economic policy, industry leaders argue.
The measures, which include doubling the stamp duty surcharge on foreign investors from 4 per cent to 8 per cent, raising land tax from 0.75 per cent to 2 per cent, as well removing stamp duty discounts entirely for investors purchasing off the plan property, may actually lead to further affordability issues.
The Urban Development Institute of Australia (UDIA) warned the extra charges on foreign buyers would drive long-term home prices up, as a fall in foreign buyer demand would lead to some developments being cancelled, worsening Sydney’s undersupply crisis and causing prices to rise further.
“You can’t expect to make things cheaper by increasing the tax on it. Australian buyers won’t benefit from reduced competition if there’s fewer properties being built and sold,” UDIA NSW chief Steve Mann said.
“Even though foreign buyers are only 11 per cent of the market, that could be enough to prevent thousands of new homes being built for Australians.”
President of the Real Estate Institute of NSW, Josh Cunningham highlighted the latest decision to be a “political” rather than “practical” solution to NSW problems.
Reducing the amount of foreign buyers would make it hard for developers to secure bank finance for construction as banks require pre-sales to lend and foreigners are a key part of that pre-sale market.
“If we cannot get enough new stock coming out of the ground, that’s going to put upward pressure on prices and rents.”
Former RBA Governor Glenn Stevens also advised against taxing foreign home buyers in his report to the Premier, noting that “if foreign purchasers are slowing down anyway, we may not want to push them down further.”
Mr Stevens advised that “the government might expect to achieve much more affordability in the longer run by spending this money in other ways, that would lead to lower cost supply of new housing.”
The Property Council of Australia also objected to the hit. “Like any market, if you tighten the screws too tightly, you may inhibit growth,” said NSW executive director Cheryl Thomas.
“We must be careful that foreign investment does not become the boogie man in our housing policy approaches … foreign investment promotes growth, jobs and contributes to this state’s income.”
Accounting firm BDO’s national leader for tax, Marcus Leonard, warned that tightening restrictions on foreigners could stall the turnover of housing stock. “This could … have a flow-on effect where subcontractors and tradespeople see less work coming in the door,” he said.
