Scott McGill, tax partner with Pitcher Partners' Sydney office, said the surcharges for foreign investors, which also include a 0.75 per cent land tax, are a backward step for NSW.
“Victoria has similar surcharges on absentee owners and they’re already starting to see foreign investors pulling out of the market, with international developers scaling back on land acquisition,” Mr McGill said.
“Combine that with a very tight lending market for developers and you run the real risk of restricting supply and pushing up real estate prices – which is the last thing Sydney needs,” he said.
“Government can’t afford to come in with a knee-jerk reaction to foreign investment without considering the downstream effects.”
The strong reaction comes after NSW Treasurer Gladys Berejiklian announced on Tuesday that the 21 June NSW budget will introduce foreign investor surcharges on stamp duty and land tax on residential real estate.
The Treasurer expects the measures will raise more than $1 billion over four years and fund essential services across the state.
Mr McGill, however, argues it is “far too simplistic” to say foreign investors are making access and affordability harder for NSW residents, adding that higher taxes on foreign investors will not improve housing affordability, but will rather undermine new supply.
He believes the Property Council was also right to say that NSW stands to lose its competitive advantage over Victoria when it comes to attracting foreign investment.
“Property is a key driver of economic growth in NSW, and with reports the market in Sydney at least is starting to cool, the Baird Government should realise that restricting foreign investment could exacerbate that exit of developers,” he said, “which is not only bad for housing affordability, but also for NSW’s continued economic growth.
“Property is a hotly contested sector, but it’s still the goose that lays the golden egg as far as economic growth is concerned, especially now that the mining boom has ended.
“It’s time for government to stop killing the goose,” he said.
The decision by the NSW government comes just days after the Queensland government revealed that it will hit foreign buyers with a 3 per cent surcharge.
[Related: REIQ slams new foreign investor surcharge]