New foreign investor laws set to spark a domestic construction crisis

New foreign investor laws set to spark a domestic construction crisis

We’ve seen some significant developments relating to foreign investment on the local level recently as individual states move to introduce or adjust taxes for foreign property buyers. Though the situation is still somewhat fluid, it’s a step that’s set to have knock-on effects for domestic investors across the board.

An Overview of Newly Announced Foreign Investor Laws

Lawlab’s Legal Director Richie Muir put together a solid summary of the situation just before the recent state budgets on their blog which we’ll be drawing heavily on here. We’ve seen Victoria officially increase transfer duty for foreign buyers to 7%, while simultaneously bumping up land taxes for foreign owners.

New South Wales and Queensland have followed that lead with their own increases in transfer duty levels for foreign owners. In the case of New South Wales, they have also tightened the payment window on off the plan purchases and have removed tax-free thresholds on land tax.

In all cases above, the increases are targeted at foreign buyers and owners of the residential real estate, but they won’t be the only ones potentially affected by the moves. As Mr. Muir points out, there’s a simultaneous push to encourage first home buyers in Queensland by using some of these tax increases to bump up the First Home Owners Grant by $5,000. It’s a trend that’s being replicated in other states such as the Northern Territory and Tasmania where similar incentives are being offered to first home buyers.

Factor in recent changes such as the tightening up of loans to foreign buyers and the introduction of minimum $5,000 FIRB application fees for foreign investor approvals, and it seems clear there’s a general move afoot to tilt the scales in favour of domestic investors.

That might sound like good news initially but, as Mr. Muir notes, “there are strong arguments from within the industry that these taxes will negatively impact foreign investment in residential property which has been underpinning much of the new development projects throughout Australia.”

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The View From the Industry

Reaction from the wider building industry to the changes has been far from positive. Malcolm Gunning of Gunning Real Estate summed up the views of many in a recent statement when he suggested that several large-scale residential apartment projects could be under threat as a result of the legislation.

Rather than splitting hairs over the fine print of the recent changes, he made the case that they send out a strongly negative message to foreign investors at a particularly vulnerable  time for states such as New South Wales:

“The message that has been picked up in China and seconded through our client base is that Australia doesn’t want Chinese investment. This could turn around and bite the state government in the backside because it will have a flow-on effect on new off plan sales if the Chinese think that they are not welcome. The construction industry is one of the biggest employers in NSW at the moment and the state government can ill afford to have a downturn in this most significant contributor to the economy.” – Malcolm Gunning, Gunning Real Estate.

The jury’s still out on just how much impact the recent changes will eventually have but, as Mr. Gunning went on to point out, we should start seeing their effects felt more fully towards the end of this year and heading into 2017.

 

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