Real estate mogul John McGrath has called out “hefty” taxes on overseas buyers as “one of the most short-sighted initiatives” that he’s seen in his 35 years of real estate.
In his message to the real estate industry in The McGrath Report for 2017, Mr McGrath said the decision for three state governments to impose “hefty taxes” on overseas buyers seems “one of the strangest” he’s seen.
Last December, the federal government introduced fees for foreign real estate acquisitions, starting at $5,000 for purchases under $1 million.
In June, the NSW government introduced a 4 per cent stamp duty surcharge for foreign buyers, followed by Victoria which raised its stamp duty surcharge for foreign purchasers from 3 per cent to 7 per cent. The Queensland government followed suit last month by introducing a 3 per cent stamp duty surcharge on foreign purchases.
“This tax could only have been imposed for one of several flawed reasons in my opinion,” Mr McGrath said. “Was it to allow local buyers to get into the market? Or was it simply to raise more revenue?”
Mr McGrath said the overall percentage of property in Australia sold to foreign buyers was “minimal”. He said the reason prices in Sydney and Melbourne have risen has little to do with overseas buyers. He pointed to supply issues for the soaring prices.
Mr McGrath referred to Sydney and Melbourne as the “New York of Australia”, saying there will be “huge demand” in these markets for years to come.
“With several billion people on the doorstep of this lucky country, many with a huge opportunity to enjoy the lifestyle that we have, it would be far easier to mount a sensible argument that both the big cities will look incredibly cheap as we look back in a decade or so,” he said.
“That is assuming that we manage our growth well and find a way to sensibly welcome immigrants and overseas investors into the country.”
‘Even more hurdles for foreign buyers to jump’
Mr McGrath said that with Australian banks tightening their lending criteria and the Chinese government limiting the amount of capital exiting the country, “there are even more hurdles” for foreign buyers to overcome.
In late April, CBA became the first major bank to change its non-resident lending policy, followed by ANZ, Westpac and NAB.
“While it’s too early for official numbers, anecdotal evidence from our agent suggests mainland Chinese investors have pulled back,” Mr McGrath said.
The report concluded that the effect of the lending curbs and government fees on foreign investment won’t be fully realised for another 12-18 months, but will be “largely limited to the new apartment market”, with some impact also felt in the mid-priced house market.