New tax for foreign buyers creates uncertainty
With Victoria racking up billions of dollars’ worth of foreign investment, how much impact would the new levy have on the market?
A recent decision by the Victorian government has provoked a debate about what effect it will have on the property market, not just in Victoria, but other states as well.
From 1 July, foreign investors will pay an extra 3% stamp duty on purchases of houses, apartments and vacant residential zoned land. The decision was made as part of the Victorian government’s 2015 state budget.
An additional 0.5% land tax surcharge will also apply from 2016 to foreigners who do not occupy the property they purchase. The changes are expected to raise $300m in additional tax revenue over the next four years.
Permanent Australian and New Zealand residents will not be affected by either of the extra fees.
Data from the Foreign Investment Review Board (FIRB) shows that foreigners added about $14bn into the Victorian property market last year, up from $2bn five years ago. It also shows that roughly 40% of new residential properties in metropolitan Melbourne are snapped up by overseas buyers.
The Victorian treasurer, Tim Pallas, argues that the measures are necessary to assist Victoria manage the impact of population growth and the demands upon infrastructure, while ensuring people are paying their fair share.
He also argues that the changes are “modest”. Indeed, in Hong Kong and Singapore there is an additional 15% stamp duty for foreign buyers.
What it might mean, according to some lobby groups, is that states such as NSW and South Australia could be the beneficiaries of more foreign investors who believe Victoria is too expensive (which could then mean a further increase in their respective median property prices). In response
to the announcement of the policy, the Queensland treasurer, Curtis Pitt, has already ruled out any new taxes on property purchased by foreign buyers.
Craig Whatman, partner at the Melbourne-based accounting firm Pitcher Partners, says that the last thing Victoria’s economy needs at the moment is for this tax to impact the flow of property development investment that has come to the state over the past two or three years. “At the end of the day, the only thing that this is likely to achieve is a reduction in the amount of residential development activity in Victoria, which would over time decrease the level of available stock and ultimately decrease housing affordability, thereby defeating the very aim of the government in introducing the new surcharges imposed on foreign buyers,” he says.
Foreigners eye desirable school zones
At the moment, many Asian buyers are looking for properties which are in sought-after school zones and near universities, according to the latest Herron Todd White report.
“Wealthy Asians and locals are ensuring they are within good school zones, which are some of Melbourne’s most prestigious suburbs,” says the report.
“This factor is a driver within the high end property market in Victoria.”
Some Melbourne suburbs which are especially in demand for their accessibility to quality education include the prestigious suburbs of Kew and Toorak, in addition to Glen Waverley
and Parkville. According to Domain, being located in a good school catchment area may add 10-15% to a property’s price.
Linda Phillips, national research manager at Propell National Valuers, agrees saying that in Melbourne school zones there is a strong, underlying demand for properties. She also believes that inner-west Melbourne is still under-priced in comparison to the inner-eastern suburbs.
Overall, she believes that “Melbourne has great potential future growth due to continuing inbound population levels into what is a relatively stable market”.
Looking to Melbourne’s west
It’s located in one of the fastest growing regions in Australia, but still offers affordable housing that’s within about 30km of the Melbourne CBD. For Phillips, if she had $500,000 and could use it anywhere in Victoria, she would be putting it straight into a property at Werribee
. Why? Because older homes are selling essentially at land value and these areas are likely to regenerate in the next 10 years due to good transport and facilities in comparison to newer suburban areas further out.
Recently, the Victorian government announced that they would be investing $85m to expand Werribee Mercy Hospital. This will include six additional operating theatres and support services, and 64 new inpatient beds. The idea is that it will also take pressure off other hospitals which are struggling due to the area’s growing population.
SUBURB TO WATCH
Caroline Springs: Family suburb springs to the limelight
Take a look 25km west of Melbourne’s CBD and you will find a suburb that’s got a lot of things going for it. Towards the north of Caroline Springs is the town square and main shopping centre. But as the name suggests, its natural beauty is a key drawcard of this suburb. In particular, the Kororoit Creek runs through the centre of the suburb which is home to some beautiful and rare plants and animals.
There are also great walking tracks, not to mention its sought-after parks and lakes.
Moving on to the popular amenities unrelated to the outdoors, there is also a good range of shops, cafés, restaurants and medical facilities within the suburb.
At the moment, the suburb’s main form of transport is car, however, a new V/Line train station at Caroline Springs is on track to be completed in 2016. Demand is already strong as shown by the vacancy rate of just 1.57%. Moreover, Onthehouse.com.au is predicting a strong 7% p.a growth over the next eight years.
Families who target this area would benefit from buying in streets such as Tumbalong St and Pyrmont Ln. Not only are they situated in a quiet area but they are in close proximity to schools, the town centre, restaurants, lakes and public transport. Three-bedroom houses in this area can be picked up for less than $500,000.
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