Victorian real estate will soon become a more expensive proposition for foreign buyers, with the state government announcing they will face increased stamp duty and land tax charges from 1 July 2016.

From the start of the next financial year, stamp duty on residential property purchased by foreign buyers will increase from 3% to 7%, while absentee owners will see their land tax rate increase 0.5% to 1.5% for the 2017 land tax year.

Neither increase will apply to Victorian owners.

The government claims the increases will ensure foreign buyers provide pay their fair share for the maintenance and development of government services and infrastructure.

“No Victorians will pay these surcharges. This is about ensuring foreign owners pay their fair share,” Victorian Treasurer Tim Pallas said.

“It’s only fair that foreign buyers of residential real estate, who enjoy the capital growth as a result of Victoria’s liveability and the amenity of our cities, contribute to the maintenance of government services and infrastructure,” he said.

But others believe the moves could have dire consequences for Victoria’s wider property market.

“For domestic property investors, this could be bad news. Chinese buying off the plan has enabled many projects to get out of the ground and thus created investment opportunities for Australians, not to mention dwellings for first-time buyers. If Chinese buying slows down, there could be a negative impact on development,” Gavin Norris, head of Australia for, an internet portal that markets Australian real estate to China

"The immediate result of this half billion dollar tax will be a rush of foreign buyers to close their deals before it kicks in on July 1, then we expect a slowdown in transactions in the second half of the year,” Norris said.

While a slowdown of foreign interest is expected after 1 July, Norris said there is also the possibility of buyers turning away from Victoria immediately.

“Some buyers undoubtedly will shift their focus to other states, despite Sydney's higher prices. This is the best thing Victoria could do for Queensland. I’m sure they will consider it a gift up in Brisbane,” he said.

“We have buyers coming to Australia this weekend, who will look at property in Sydney and Melbourne. They were already hesitant when they heard about the three-percent tax. They are certain to be dismayed when we tell them it will actually be seven percent.

"Victoria now has more confiscatory foreign buyer policies then New South Wales, Queensland, New Zealand, the US, the UK or Canada, all of which are competing aggressively to take these buyers away from Victoria."

While Pallas and the government claim the changes will generate $486 million over the next four years, Norris said the government may actually be losing out.

“This is equivalent to charging buyers one or two years of capital gains on their properties. We think it is a big ask and it certainly reduces the appeal of buying in Victoria,” he said.

“Let’s not forget the benefits that foreign buyers bring. They bring construction jobs, government revenue, retail and services spending, education spending, tourism spending and often ultimately become skilled citizens of Australia who help grow our economy and pay Australian taxes. When the government discourages one buyer, it loses tens of thousands of dollars in other benefits.”