by Levi J Parsons
SYDNEY, June 29 (Xinhua) -- The New South Wales State Treasury was warned on Friday by an expert report that the ongoing property rule would have a "large negative impact" on Sydney's housing sector and do little to address the its housing affordability problems.
In order to address housing affordability concerns for first-home-buyers in Sydney, the New South Wales State Government initiated a new rule on July 1, 2017 to abolish stamp duty on homes under 650,000 Australian (480,000 U.S. dollars) and reduce the cost of stamp duty on properties worth up to 800,000 Australian (590,000 U.S. dollars).
The flip-side of this new legislation however, was that foreign buyers would have to pick up the slack and pay double stamp duty on properties, with an increase from four to eight percent of the total property value.
Not surprisingly, foreign investment in Sydney's real estate market slumped. With around 4000-5000 properties sold to foreign buyers annually, in the financial year of 2018-19 the NSW Treasury expects that number to decline dramatically to around 2000, costing the state almost one billion U.S. dollars in lost revenue.
At the same time, foreign investors in the world's second most expensive housing market were also stung with an increase in land tax and an additional seven percent transfer fee.
The report said that because foreign investors are required to buy new, mostly "off the plan" housing, a "drop off" in foreign investment would make it more difficult for property developers to raise capital through pre-sales and therefor choke supply.
"The way that foreign investment intersects with first-home-buyers is interesting," program director at the School of Architecture, Design and Planning at The University of Sydney, Dallas Rogers told Xinhua.
"If you talk to property developers, they will say that foreign investment is good for housing affordability because foreign investors can only buy new stock."
"So if you accept the argument that increasing supply helps address housing affordability then foreign investors are good for affordable housing."
While Rogers believes there are several other factors which have contributed to the decline of foreign real estate investment down under, such as the changes in global economic conditions and tighter restrictions around bank lending, others in the property industry are adamant the recent stamp duty increases on foreign buyers have played a largely significant role.
"Foreign investment in the development sector has been hit by the increased taxes," Urban Development Institute of Australia NSW chief executive Steve Mann explained to Xinhua.
"This has provided a disincentive for foreign investors to choose to invest in NSW and these surcharges make it hard for a build-to-rent sector to emerge in NSW."
To address these concerns, the NSW Government recently introduced a new refund and exemption mechanism for surcharge duty and land tax for foreign real estate buyers, provided the developers are Australian-based and sell their property within 10 years.
