On the lazy pretext of “everyone else is doing it”, the McGowan government introduced a new tax on foreign buyers of property as a way of raising additional revenue. About $123 million is expected to be raised over the forward estimates by charging foreigners an extra 7 per cent transfer duty on top of the original stamp duty normally payable.
At Perth’s median house price of about $500,000, that’s a tax bill of $54,665. At Fremantle’s median price, a non-resident would pay $89,900.
Foreign buyer taxes are justifiable when non-resident purchaser activity is squeezing out local buyers who are looking to buy a home such as recently experienced in the booming Melbourne and Sydney markets. It is well known that Perth’s property market has been stagnant for a decade with no net growth in property values for ten years. Transactions are at thirty year lows, down a further 16 per cent last year on 2017’s record low result.
Foreign buyers looking to invest in Australian property are important because they often soak up sufficient newly built stock to ensure new developments proceed, which keeps tradies employed and the economy growing. A massive new tax acts as a significant disincentive and with credit tight and no clear prospect that the local property market is set to boom, investors (including locals) are not buying at the moment anyway. Investors having to pay huge taxes will cop it where there’s a reasonable prospect that the capital growth of the asset will soak up the tax cost in the medium term; not something investors anticipate for the Perth market.
As a result, I cannot see how this tax is going to raise much revenue at all. Right now, Perth needs to attract buyers not frighten them off with enormous taxes.
In fact, it is causing further damage to the market. The tax doesn’t just target foreign investors. For example, locals married to a non-resident, living here on a spousal visa are also caught. That is because the tax applies to the spouse’s half of the asset. At Freo’s median house price that’s an extra $27,650 on top of $34,600. Couples in that situation, faced with the prospect of such an impost are either simply choosing not to buy or can’t afford to buy.
In a flying market where foreign speculators are outbidding local buyers a special tax on non-residents makes some sense, but to justify its introduction “because the east coast does” when our property markets operate so differently is reckless, unimaginative and bad policy that damages our economy.
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