Tax changes send Chinese buyers offshore from Australia

A brutal repression by state and federal governments is sending Chinese buyers of Australian residential real estate offshore.

Last year the NSW government doubled stamp duty for foreign investors from 4 per cent to 8 per cent and increased the annual land tax surcharge from 0.75 per cent to 2 per cent, while the Federal budget removed capital gains tax exemptions for overseas buyers and introduced a 50 per cent ownership cap for new residential developments.

The budget also introduced a “ghost tax” giving the Australian Taxation Office power to fine foreign investors up to $5500 a year if they leave their properties unoccupied, plus up to $52,500 for failing to hand in their forms.

Meanwhile, the Victorian government’s own vacant residential land tax kicked in this month, with owners in 16 council areas with are predisposed at potential fines equal to 1 per cent of the property’s value if they leave their properties empty.

Last year, Credit Suisse analysts estimated foreign buyers purchased 25 per cent of all new supply in NSW, with Chinese buyers accounting for nearly 80 per cent of foreign demand.

But according to financial services company UBS, tax and regulation changes joint with strategies of the Chinese government to prevent money flowing offshore, were sending those buyers to greener lands — with Bangkok tipped as the next hotspot.

UBS head of global property research Kim Wright told a local newspaper that they have found out that Chinese purchase of property abroad tends to be very price and currency-aware. Their interest on specific markets will fade or pick up, depending on their view of currency. Over the last two years we have seen Asian demand of Australian property, specifically in Sydney, Melbourne and Brisbane, that’s been very strong. It looks like that has started to disappear over the past six months.

She thinks it’s the mixture of factors. Prices have been very strong in Australia, so there is now a debate regarding the fact that the cycle has started to increase and about the tax changes that have come through, along with the tax controls.

It comes after latest CoreLogic data showed national dwelling values fell 0.3 per cent in December. AMP Capital chief economist Doctor Shane Oliver said in a weekly note that the Sydney and Melbourne property boom continues to collapse.

More severe lending standards, rising levels of unit supply, slower Chinese demand and reduced investor enthusiasm for property are all affecting the market and they will probably lead to further declines in Sydney and Melbourne property prices this year at around 5 per cent — maybe a bit more in Sydney and a bit less in Melbourne.

Doctor Oliver said the cooling in Sydney and Melbourne was good news for the Australian Prudential Regulation Authority and the Reserve Bank and helps assure the necessary flexibility to leave interest rates low until the broad economy is ready for an increase, which isn’t forecasted until late this year.

He also added that this matter also provides a bit more room for first home buyers. However, other cities are running on their own way, with Hobart likely to continue strengthening, Perth and Darwin close to the bottom and moderate growth in Adelaide, Brisbane and Canberra.