Game changer For Property Investors

A game changer has been announced that will impact Aussie property investors, particularly those in Victoria.

Earlier today, the Victorian Treasurer – Tim Pallas – announced that from 1 July foreign purchasers of Victorian real estate will pay the normal stamp duty PLUS an extra 7% of a property’s value. It should be noted that this is an increase (to 7%) from the the already imposed 3%.

As an example, an Aussie citizen buying a $700,000 home in Victoria would pay stamp duty of $37,070. A foreigner buying today would pay $58,070. A foreigner buying after 1 July 2016 will pay $86,070. That’s 12.29% of the purchase price. Ouch.

There is also a nasty little increase to land tax too for ‘absentee owners’ – an increase from 0.5% to 1.5%

Although the Treasurer spruiked that Victoria is the favoured place for foreigners to park their money, the Australian Financial Review reports that “Purchases of new properties in Victoria by foreign buyers fell to 10.7 per cent in the three months to March from 32.5 per cent in December 2014.”

Why is this newsworthy?

Well, it seems the lessons of the failed NSW government attempt in 2004 to slug all property owners with a exit stamp duty of 2.25% have been ignored. All that did was pour cold water on the property market and create a political stench that still lingers in the nostrils of NSW property investors.

Economics 101 says if you increase the cost of business, that business will move to a more efficient (cheaper) market. In this case, anywhere other than Victoria. Take away that demand and unless the number of houses available for sale diminishes too, price must fall. But hang on… there has been a glut of new apartments approved over the past 12 months, so the supply pipeline is gushing and now demand has been throttled back! Nuts! Victoria loses, everywhere else wins.

That said, there may be a scramble for foreigners to sign up contracts between now and 1 July so as to only have to pay a 3% surcharge. Developers better fire up their marketing campaigns fast.

The property market in Victoria is already peaking. A dumb announcement like this may result in some political high fives by the boffins in the bowels and back rooms of Parliament, but for those in the real world, this will hurt sentiment and push buyers to other markets.

You heard it here first.

– Steve McKnight