Yesterday’s budget announcement confirmed foreign property investors will be slapped with new application fees. But it’s not going to improve housing affordability for first home buyers. That’s because the measures are still far too soft.
The government will slug foreign investors with a $5,000 application fee. That’ll only apply to homes worth up to $1 million. For properties worth more than $1 million the fee will rise to $10,000.
The Coalition government says this will raise $735 million during the next four years.
On the surface it looks like the government cares about controlling Sydney’s overheating property market. But if you look a little closer, you’ll see it’s nothing more than a revenue raiser.
That’s because the government is signalling it doesn’t want to keep investors out. In public they say they’re worried about housing affordability for Aussie first home buyers. But their actions show otherwise.
Why are the application fees so low? What’s $10,000 to a foreign investor who’s spending over a million on a house? Chump change. The fees aren’t high enough to deter investors from buying up investments.
That’s why this measure just comes across as a futile cash grab. If they truly wanted to help first home buyers, they would raise the fees to hit investors where it hurts.
Why Chinese investors concern the government
Chinese investors are largely to blame for the new application fees. That’s because they’re the most active buyers. They’re a big part of Sydney and Melbourne’s recent property price boom.
Sydney continues to have record high auction clearance rates. Average homes are worth almost 15% more than they were last year. They’ve been buying up luxury properties in Sydney at a startling rate.
Reports surfaced last week detailing the extent of China’s future investment in Australian property. Chinese buyers will pump over $60 billion into Australian real estate by 2021. The net effect is that it’ll continue pushing up Australian house prices for domestic buyers.
We shouldn’t discount the RBA’s role in pushing up property demand. Lowering the interest rate has increased buyer demand. And it should have increased housing affordability. But in Sydney this is being offset by the role of Chinese investors pushing up prices.
Why Sydney’s property market will grow much higher
Chinese real estate demand is likely to remain confined to Sydney. They have the Victorian government to thank for that.
They have announced a plan to increase stamp duty and land tax for foreign investors. Foreign buyers will pay an extra 3% surcharge on stamp duty. And they’ll face an additional 0.5% land tax surcharge. This will apply to all non-permanent residents from 2016.
That means Melbourne will miss out on some of the investment glut. It’s just not going to see the same rate of foreign investment as before.
So you can expect to see even more Chinese investment flowing into Sydney. That’s great news for property owners in Sydney. But it’s going to make it even more difficult for first home buyers to enter the market.
Contributor, The Daily Reckoning
China’s thriving economy is creating a growing number of wealthy investors. The Daily Reckoning’s Phillip J. Anderson has been writing for years about China’s boom. He thinks the good times are only beginning.
Phil believes that now is the best time to invest in China. Their growing economy is only creating an array of new investment opportunities for Aussie investors.
To find out how to download his report, ‘The Cassandra Syndrome: After This Report, You Won’t Worry About China Again for Another Decade’, click here.