By Emma Spielvogel

3 May 2016

Foreign purchasers will face increased property surcharges to ensure they “pay their fair share”, as stated by State Treasurer, Tim Pallas.

The proposed 2016-17 Victorian Budget is seeking to increase the stamp duty surcharge payable by foreign investors who purchase residential real estate in Victoria from 3 percent to 7 percent. This will apply to contracts signed on or after 1 July 2016.

The land tax surcharge on absentee owners has also been raised from 0.5 percent to 1.5 percent and is proposed to be effective from 1 January 2017. Mr Pallas has announced that these measures guarantee that foreign buyers, who are not charged payroll tax or GST, yet, enjoy the capital growth associated with Victoria’s liveability, will fairly contribute to the development and maintenance of government services and infrastructure. The budget changes are also expected to raise $486 million over the next four years.

Since the introduction of the initial surcharges, Mr Pallas has stated that “there has continued to be a welcome and steady stream of foreign interest in our residential real estate”.

While the Andrews Labor Government does not believe the higher tax rates will act as a disincentive for foreign investors, opponents have argued that they will have a negative impact on foreign demand for Victorian homes.

The NAB Quarterly Australia Residential Property Survey – Q1 2016 revealed that there has been a shift in foreign buyers away from Victoria. Foreign purchases fell to a 2.5 year low in the first quarter of 2016, with foreign buyers accounting for around 1 in 10 new home sales. In late 2014, foreign purchasers accounted for 1 in 3 new property sales

There is concern that the tax increases may damage investment confidence and impact on future housing affordability.

State Shadow Treasurer, Michael O’Brien believes the increased surcharges will be passed on to Victorian residents as “higher taxes on property simply means higher rents”.

It will certainly be interesting to see how these tax changes unfold and impact upon the Victorian property market.

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