Australian housing market

In the follow-up to WA’s 11 March election, people are turning to Labor Party leader, Mark McGowan, to see which of his campaign promises he’ll prioritise during his first term as Premier. One of his most controversial promises was to introduce a 4 per cent tax on foreign buyers of residential property. While this surcharge hasn’t been unveiled yet, there are many warning that it would be a step in the wrong direction for the WA property market.

A Background on Taxing Foreign Property Buyers in Australia

We should start by acknowledging that Western Australia is by no means the first state in the nation to consider rolling out such a tax. Similar taxes have also been applied in Queensland (3 per cent), New South Wales (4 per cent) and Victoria (7 per cent).

All of these taxation programmes are designed to boost the state’s spending power without doing so at the expense of local taxpayers. And with WA expected to have amassed a $33 billion debt by the end of this June, revenue streams like this are understandably preferable to those that arise from new, locally levied taxes.

It is worth noting that the Western Australian property market has benefited from the introduction of these taxes in other provinces. International (and particularly Chinese) investors have been gobbling up properties across Australia – and particularly in Sydney and Melbourne. The introduction of a foreign buyer surcharge in those markets has prompted some investors to give Perth a longer look.

Property prices were already competitive in Perth, and these new taxes in other Australian markets only intensified that disparity. Some experts were even calling the introduction of these taxes in other states a ‘tipping point’ for Perth, after which we would see an even more robust property market emerge.

Of course, levying a 4 per cent surcharge on foreign property buyers in Western Australia will reset the scales. Any brief advantage previously gained will be cancelled out.

Will This Tax Hurt the WA Property Market?

Not everyone welcomes this proposed tax. Some insist that Western Australia’s role as one of the only states not to tax offshore buyers sets it apart and makes it more attractive. Without this advantage, they fear that foreign investors will focus their efforts on Australia’s opposite coast, since there’s no reason to give Perth special attention.

These critics have also pointed out that foreign buyers are already restricted in the type of property they can purchase. One of the main areas they are permitted to invest is in new multi-units and off-plan apartments. They add that Perth needs more projects like this to diversify the local housing stock.

Foreign investment on the East Coast is already high, and it does appear that Perth and greater WA’s property market has benefited from the introduction of foreign buyer surcharges in other states. Chinese investors have been taking advantage of direct flights introduced between Perth and Guangzhou. And there is plenty of evidence that international investment has been picking up. Take the major redevelopment project slated for the site of the former Myer Megamart in Northbridge – which includes 1,000 apartment units and is funded by a Middle Eastern-backed group.

For those who have enthusiastically welcomed just this sort of investment in Perth, the introduction of a new stamp duty surcharge for foreign buyers looks like a step in the wrong direction. But others insist that this measure won’t deter foreign buyers – particularly those based in China.

Here’s Why Some Say Chinese Buyers Won’t Be Deterred by This Surcharge

When it comes to foreign investment, China is definitely leading the pack in Western Australia. And some experts insist that this trend will continue regardless of (or even in spite of) this surcharge. They point out that 4 per cent of a $500,000 property purchase is $20,000 – a tidy sum, but relatively little when compared to the half a million they would already be spending.

Not only that, property prices in Perth will still be more competitively priced than those in other capital cities in Australia. WA’s proposed tax would not be as high as the one levied in Melbourne, nor are Perth’s median property prices nearly as high as those in Sydney. Taxed or not, Perth and greater WA remains an affordable investment market.

Furthermore, the Reserve Bank of Australia has been cutting interest rates to record lows recently. This has led to a weaker Australian dollar against the Chinese yuan. This has, no doubt, galvanised investors to continue looking for profitable investment opportunities in Australia. Given the affordability of Perth and greater WA’s property market, they’re still likely to focus those efforts here.