By: Jonathan Barrett | Tom Westbrook
SYDNEY: Soon after Australia’s New SouthWales state announced it was doubling the tax for foreigner homebuyers earlier this month, calls started flooding into Sydney-based real estate agent Shan Lin.
“My phone never stopped, I charged my phone three times, nokidding – overseas clients, overseas agents, my channels inChina,” said Lin, who deals mostly with Chinese-based investors.
“They definitely feel the pressure. They say, ‘Shan, look, Iwill not consider investing in Australia or investing inSydney’.”
Chinese property investors are turning their backs onAustralia as a series of measures designed to cool one of theworld’s hottest real estate markets targets foreign buyers,raising the risk of a damaging correction in house prices.
Australia’s latest move follows similar measures imposed inother favoured destinations for mainland Chinese includingVancouver, Singapore and Hong Kong.
But there are fears the Australian measures have beenintroduced into a frothy market already showing signs of stress.
Sutono Pratiknya, a Sydney-based sales consultant, said thechanges sent a clear signal to his overseas investors they werenot welcome.
“We used to do five property tours a month, picking up adozen investors from the airport and showing them our latestoffering,” Pratiknya said. “Now, there’s nothing.”
With Australian banks heavily reliant on mortgages, economicgrowth slowing, and the Reserve Bank warning about householdsgroaning under record amounts of debt, any sharp fall in houseprices risks derailing Australia’s record 26 year recession-freerun.
New South Wales’ new tax arrangements will see duties fromhome sales to foreigners rising to 8 percent of the purchaseprice, taking total taxes on overseas buyers to more than 13percent.
SPEED OF CHANGE
While Australia is not alone in introducing foreign propertytaxes, the number and speed at which new policies are beingimposed is spooking foreign buyers.
In just over a year, all major east coast cities haveintroduced and, in the case of Sydney, expanded foreign duties;the country’s biggest banks have stopped lending to overseasbuyers; and the federal government has introduced punitivemeasures for foreigners who leave properties vacant.
Foreigners will also lose a capital gains tax exemption fortheir primary residence in changes unveiled in last month’snational budget.
Big apartment developments are most at risk, givenforeigners are restricted to buying “off-the-plan” andnewly-built homes under Australian law.
Foreigners account for a quarter of new housing sales in NewSouth Wales, according to a Credit Suisse report, with Chineseinvestors by far the biggest buying group.
“The fact is that a lot of developments hinge on foreigninvestment,” said David Bare, the NSW executive director at theHousing Industry Association. “Applying these measures when themarket is starting to cool is going to have a much greatereffect than it might’ve 12 or 18 months ago.”
Sydney home prices, after doubling since 2009 to topA$872,000 ($658,000), recorded a rare fall in May, according toproperty consultant CoreLogic. Auction clearance rates – a keyindicator of demand – have also been slipping as an abundance ofnew homes hit the market.
Meriton Group, Australia’s largest apartment developer, isexpected to be impacted given it has a cluster of new Sydneydevelopments targeting Chinese buyers.
“Its connections into China are deep, but trying to sell toforeigners in this market is like swimming up a waterfall,” saidone property investor close to the company who declined to benamed.
Janice Jiang, a Meriton sales consultant in Sydney, said thecompany made about half its sales to foreigners, and that theextra taxes would have little impact in the long run.
Meriton’s founder, billionaire Harry Triguboff, declined tocomment on the impact of the tax hike.
BUST OR ROBUST?
At development sites scattered throughout Sydney’s tonynorthern suburbs and sprawling west, showrooms have signs inMandarin and offer Asian sweets, in addition to coolers full ofAustralian wines, seeking to tempt both foreign and localbuyers.
At one showroom for a 38-apartment development calledEmerald Epping, sales agent Henry Wong said most customers mightappear Asian, but were often from families who migrated ageneration or more ago.
Some developers say such domestic sales are robust enough tofill any gap left by foreigners, especially given extragovernment help for first-time home buyers.
“We are OK with this, our business model isn’t relying onmassive investment from overseas purchasers and for first homebuyers, it’s the right decision,” said Jay Carter, sales andmarketing director at Poly Australia, a subsidiary of Chinesestate-controlled Poly Real Estate Group Co.
Art Yang, chairman of Gasheng Overseas Investment Groupbased in China’s Guangzhou, said the new taxes would not impactvery wealthy Chinese buyers, but would hurt investors borrowingto buy property.
Many are being advised to look elsewhere.
“It seems like the tax increases are never-ending,” saidEsther Yong, a director of Chinese property agencies Sodichanand ACproperty. “I have buyers who were looking at Australianproperty and agents in China convinced them to buy in the U.K.instead.”($1 = 1.3245 Australian dollars)
(Additional reporting by Clare Jim in Hong Kong and ClaraFerreira Marques in Singapore; Editing by Lincoln Feast)
Source: Reuters