The future is looking grey for foreign property investors in Victoria amid the sharpest 12-month fall in property and housing prices in the state’s history. Foreign investors are set to bear a large brunt of the steep decline in stamp duty revenue the government took in over the previous financial year. Heritage property and residential landowners will also be affected, as the Victorian Government attempts to offset a $5.2 billion shortfall in stamp duty due to the weakening property market. Property prices have fallen by about 10% over the last year, whilst the number of transactions has fallen by about 15% during the same time period, meaning these tax increases come at an inopportune time.
Foreign investor duty will rise from 7% to 8% from July 1 2019, in addition to approximately 3,000 foreign owners having their absentee owner tax rise from 1.5% to 2%. Together, these two tax increases are expected to bring in an additional $330 million to the Victorian economy over the next four years. The increase in foreign investor stamp duty will bring Victoria more in line with other states in Australia, including Queensland (which had foreign investor stamp duty increase to 7% as of July 1 2018) and Western Australia, which will similarly have foreign buyers duty increase to 7% on July 1 2019.
Approximately 1,700 metropolitan Melbourne property owners will also be paying land tax on vacant blocks adjacent to their homes, unless they choose to pay roughly $600 to consolidate titles. This move, regarded as a crack down on land banking, is intended to target those who do not genuinely use the land as part of their residence.
The Property Council of Australia said that “the tax hikes will hurt local businesses, threaten jobs, and cripple investment opportunities”.
“Global investors will close the door on investment in Victoria because of this decision,” said
Executive Director Cressida Wall describing it as a “short-sighted cash grab”.
Victorian Treasurer Tim Pallas said that the increase in taxes will bring Victoria inline with New South Wales, and that given “Victoria is (home to) almost 50% of all foreign purchases”, aligning with New South Wales “should cause little damage to what is clearly a very enthusiastic foreign purchasing market.” He also expects prices to continue to fall for at least another 12 months.
However, Mr Pallas said that with an interest rate cut on the horizon, and regulators starting to ease lending restrictions, there are “green shoots” that point to a recovery of the Victorian property market.