VIC State Budget 2016-17 | Increase In Foreign Investor Stamp Duty And Land Tax Surcharges

By Craig Whatman - April 27, 2016

The Budget confirms last week’s announcement that the Andrews Government intends to dramatically increase the stamp duty and land tax surcharges imposed on foreign investors.

The stamp duty surcharge applicable to foreign purchasers of residential property will more than double from 3% to 7%, and the land tax surcharge applicable to absentee owners of all taxable property in Victoria will triple from 0.5% to 1.5%.

The increase in the stamp duty surcharge will result in the stamp duty cost for a foreign purchaser of a $650,000 off-the-plan apartment in Melbourne increasing significantly – to approximately $50,000. By contrast, if the same apartment is purchased by someone who is not a foreign purchaser their stamp duty cost will be approximately $5,000.

We believe that targeting foreign investors with higher stamp duty and land tax charges will, over time, reduce the level of investment into Victoria. 

Victoria’s economy has seen significant inbound flows of property development investment over the last 2-3 years, and it remains to be seen how this investment will be affected by these additional surcharges. But we are already starting to see some foreign investors withdrawing from Victoria’s property market.

Melbourne’s population is projected to overtake Sydney’s by 2030. As we continue to experience significant population growth across the state, it’s critical to have stamp duty and land tax policy settings right to ensure that we can meet the housing supply challenges the future will hold. 

The state government introduced land tax and stamp duty surcharges on foreign investors in the previous Budget, on the basis that targeting this category of investors should increase the supply of housing stock available to Victorians, thus lowering prices. 

But Victoria’s housing affordability problem is rooted in a lack of supply, which is only set to worsen as our population continues to grow. In this context, these policies seem counterproductive: they could quite potentially make Victoria a less attractive investment destination for foreign capital.  

Neither New South Wales nor Queensland has an equivalent surcharge regime and with the increases in Victoria’s surcharges, the investment opportunities in those other states could start to look a whole lot more enticing than in Victoria.

Over time, decreased development activity would reduce the level of available stock and ultimately increase prices and decrease housing affordability.

The Treasurer’s assertion that “No Victorians will pay these surcharges” is incorrect. Although Victorians are not directly liable for the surcharges, some Victorians are already starting to bear the costs. 

A number of the commercial buildings within Melbourne’s CBD have foreign owners who are now subject to the 1.5% land tax surcharge. The surcharge has become an additional holding cost which those landlords are seeking to pass on to their tenants through increased rents. Many of those tenants are small and medium businesses owned by Victorians.  

Furthermore, a number of Victorian-owned property developers are in joint ventures with foreign investors, who will be subject to the 7% stamp duty surcharge with respect to acquisitions of residential development sites. The cost of the duty surcharge becomes a project cost that impacts the local joint venture partner as well as the foreign joint venture partner investing in the development.

We thoroughly support the state government’s continued commitment to infrastructure investment in this year’s Budget. It’s clear that the Andrews Government recognises Victoria’s growth potential.  

However, we remain concerned that while the government says it is committed to attracting offshore investment into Victoria and is investing more than $200m in this Budget into programs that target that investment, the foreign investor surcharges could drive the very same offshore investors elsewhere.


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