Foreign investment in Australia has escalated, growing from 4,400 sales in June 2010 to 38,545 in 2016.
Much of this has come from mainland Chinese buyers who find Australia a safe investment option.
However, there is a general sense of concern of the impact foreign buyers have on prices, which has led to the federal and state governments introducing additional buyers fees to profit from the increased activity.
Australia’s restrictions on foreign real estate investment ensures foreign buyers must only acquire new property. This ensures the maximum economic impact in the community, as jobs are created in the construction industry and housing stock is improved to support a rising population.
Previously, there was no fee levied on foreign buyers and the Foreign Investor Review Board (FIRB) was fairly inactive in enforcement activity due to funding restrictions.
This changed with the introduction of a new Foreign Buyers Levy on December 1, 2015.
The fee is calculated at A$5,000 for purchases under A$1 million. For property over A$1 million, the fee is approximately A$10,000 with a further A$10,000 per additional A$1 million in value.
The fees do not apply to Australian citizens or permanent residents.
If an Australian citizen buys a property with his or her foreign spouse, the fees would apply on the spouse’s share, which remains relatively low compared with many other countries.
Each state government has the right to charge on property transactions.
For instance, in each state, a stamp duty upon purchase is levied, and can range from approximately 4 to 6 percent as the price increases. Stamp duty is paid on the contract price, but Victoria and South Australia offer concessions on off-plan purchases, which reduce this cost significantly. Victoria levies the duty on the value at the time of signing, so early purchasers save, and the duty rises as construction advances. South Australia offers an incentive for inner-city property bought off-plan, with an exemption from duty on the first A$500,000 of the purchase price.
Additionally, some states have an additional foreign buyers’ duty.
Foreign buyer fees are a substantial additional cost that need to be budgeted for at the time of settlement.
Although it is a sharp increase to past costs, the foreign buyers’ fees are low in comparison to international markets like Singapore (10 percent), Hong Kong (15 percent) or Vancouver, Canada (15 percent).
With foreign investment in Australian residential property at record levels, these fees will dramatically improve the finances of the relevant governments and, hopefully, help improve services and infrastructure as a result of the increased revenues.
Steve Douglas is the Co-Founder and Managing Director of Australasian Taxation Services (ATS). ATS provides specialist taxation services for anyone looking to invest in Australian property, including Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning. Find out more here.
From The Finder, January 2017
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