The New South Wales government is after a bigger slice of the overseas investment flooding into Sydney’s booming property market, with treasurer Gladys Berejiklian announcing today that next week’s state budget will include foreign investor surcharges on stamp duty and land tax on residential real estate.
A little over 20% of property in Australia is sold to foreign investors.
NSW is now the third east coast state to look at foreign investment to boost state coffers after Victoria increased the surcharge for foreign buyers of residential property from 3% to 7% in its April budget. The change comes into effect from July 1. Victoria also trebled its land tax surcharge on “absentee landholders” from 0.5% to 1.5%.
Treasurer Tim Pallas expects it will deliver an additional $486 million in revenue over the next four years. The move comes after the introduction of the 3% surcharge appeared to have no impact on demand, despite predictions to the opposite from the real estate industry.
Last week Queensland’s Labor government announced its own 3% transfer duty surcharge.
Treasurer Curtis Pitt says the move will generate around $25 million for the state annually, adding about $14,000 to the price of the average $475,000 price of a Queensland home.
NSW treasurer Gladys Berejiklian will add a 4% stamp duty surcharge on residential property bought by foreign purchasers, plus 0.75% land tax surcharge for foreign owners from the 2017 land tax year.
She expects the move to generate $262 million in total next financial year and more than $1 billion over four years.
“The Victorian experience has demonstrated that the measures have not had an adverse impact on the property market,” Berejiklian said.
“These new measures will ensure NSW’s property market continues to be an attractive destination for international investors while making sure that we are able to fund vital services into the future.”
Under the changes, foreign investors will no longer be entitled to the 12-month deferral for the payment of stamp duty for off-the-plan purchases of residential property and will not get the tax-free threshold for the land tax surcharge.
The move comes as developers are increasingly targeting the lucrative Chinese market with new residential sites in Australia.
The Property Council of Australia has been vociferous in its opposition to the surcharges, last week accusing the Queensland government of breaking its promise from 12 months ago not to introduce a surcharge, and turning its back on investors, claiming it would cost jobs.
Today, Scott McGill from Pitcher Partners Sydney claimed that Victoria was starting to see foreign investors pulling out of the market, and international developers scaling back on land acquisition.
Amid tightening lending restrictions, recent National Australia Bank data revealed foreign buyers of new property in Victoria in the March quarter slumped to their lowest since 2014.
McGill claimed the NSW decision would push up the price of property for everyone.
“Government can’t afford to come in with a knee jerk reaction to foreign investment without considering the downstream effects,” he said.
“You run the real risk of restricting supply and pushing up real estate prices – which is the last thing Sydney needs.”
McGill said it was “far too simplistic” to argue foreign investors were pricing local buyers out of the market.
“Higher taxes on foreign investors will not improve housing affordability, but rather it will undermine new supply coming on board,” he said.
Tag: Foreign Investors
Changes to foreign student visas will boost property market
New rules affecting foreign student visas, which go into effect from 1 July 2016, will be a boon for the property market, especially in Sydney and Melbourne.
The Simplified Student Visa Framework (SSVF) aims to “support the sustainable growth of Australia’s international education sector” by reducing red tape. Key changes under the SSVF include reducing the number of student visa subclasses from eight to two and introducing a simplified single immigration risk framework for all international students.
The head of Australia for Chinese property portal, Juwai.com, Gavin Norris, said the new framework is positive for the Australian housing market.
“Six out of every 10 Chinese property buying inquiries made in Australia last year were related to education,” Norris said.
“Juwai.com sent about AU$1.6 billion of property buying inquiries to Australian vendors last year, and almost $1 billion of that value came from families who wanted to buy homes for their children to live in while studying here.
“Anything Australia does to increase the number of Chinese students will also increase investment in strategic areas of the real estate market that generates more construction jobs, more new housing being built and more economic growth.”
Last year, Chinese students made up 1 out of every four international students in Australia, and international students support about 130,000 jobs, according to research from Juwai. Norris said these statistics demonstrate the invaluable contribution foreign students have on the Australian economy.
“When Australia wins a foreign student, it gains tens of thousands in education fees, additional tens of thousands in retail and services spending, hundreds of thousands in a potential real estate investment and – most important of all – the possibility that highly educated individual will decide to stay and work here and contribute to our economy over the long term,” he said.
“Every student who might have come here, but doesn’t, could represent substantial lost benefits.
“The reverse is also true. Anything that discourages international property investment also risks causing adverse impacts the education industry.”
Norris has also praised other SSVF changes, which include trialling visa applications in Mandarin and trialling 10-year student visas.
“These visa changes are smart, and help Australia catch up to nations like the US, which offer similar visa terms.
“The most important elements are the Mandarin language applications, the 10 year validity pilot and the simplified paperwork.
“For the most part, these changes are about avoiding the loss of our privileged place as a destination of choice for overseas students, rather than beating the competition,” Norris said.
AMP classifies non-resident borrowers ‘unacceptable’
AMP Bank has classified non-resident borrowers as an “unacceptable borrower type” amongst a myriad of other tougher lending rules regarding foreign income lending.
In the note sent to mortgage brokers last week, AMP said non-resident borrowers will now be deemed an unacceptable borrower type, unless a spouse or defacto is a citizen or permanent resident of Australia or New Zealand and a borrower of the loan.
In addition, the non-major has also cracked down on foreign lending income from nine currencies, in particular the Chinese Yuan.
The changes, applicable to any applications on or after Monday 30 May 2016, see only 50% of income derived from the Chinese Yuan (salary, investment and rental) as acceptable.
Where the Chinese Yuan is used for serviceability, the maximum LVR has also been reduced to 50%.
Eight other foreign currencies have also been subject to tightened conditions, albeit to a lesser extent than the Chinese Yuan.
Only 80% of the further eight currencies – Canadian Dollar, EURO, British Pound, Hong Kong Dollar, Japanese Yen, New Zealand Dollar, Singapore Dollar and U.S. Dollar – will be deemed acceptable. In addition, these currencies will also now have a reduced maximum LVR of 70%.
In the note sent to mortgage brokers, AMP said the restrictions came “due to recent changes in the market in relation to non-resident and foreign income lending”.
Australia may not have the ‘full picture’ of what foreign buyers own
With about one out of four developments bought by foreigners, it is possible that sales of new residential properties to offshore buyers could be much higher than what local banks estimate, according to ratings agency Fitch Ratings. This could raise risk for banks and the economy.
Fitch Ratings’ Andrea Jaehne claims that there was an increase in foreign buyers since 2010, with data from the Foreign Investment Review Board showing an eightfold increase in approvals up to 2015. It is difficult to know the true number of properties sold offshore because there is no required approval for foreigners buying apartments off the plan.
“The condition is they have to market the property into the local market, but often you find them selling it off in Hong Kong, Singapore, and Shanghai,” Jaehne said in a Sydney conference yesterday. “We don’t have a full picture of who is buying this property.”
Foreign buying in some pockets of Sydney and Melbourne is believed to be much higher than the 25 per cent conservative estimate of most banks, with up to 80 per cent of some apartment developments sold directly to offshore buyers.
Regulators and banks have responded to concerns about foreign buyers pushing up property prices by restricting lending for investment properties. This led to dwindling Chinese investors, despite the fact that around 250,000 new apartments are set to hit the market over the next two years.
“Vendors aren’t as confident as they were 12 months ago,” said analyst Cameron Kusher from CoreLogic RP Data. “The rate of price growth is slowing, and people are holding out until the election is done, and then after that, they’ll hold out until spring.”
As a result, Fitch has issued a rare downgrade of five residential mortgage-backed bonds.
Chinese interest in Aussie property up 87% in a year
Property purchase enquiries from Chinese buyers increased by 87% in 2015, according to new data.
The data released by online Chinese property portal Juwai.com show that Chinese buyers made enquires worth USD$34.9 billion over the year, with Victoria ranking as the most popular state.
The top five cities where Chinese buyers directed their property purchase enquires were Melbourne, Sydney, Brisbane, Adelaide and the Gold Coast. Enquiries for Melbourne property increased by 177% in 2015.
Chinese buyers are active across the entire range of prices, but that more than half of Chinese buyers are seeking property in the $200,000 to $500,000 range.
NAB enforces tougher foreign lending conditions
NAB has become the third major lender to announce tightened lending conditions for foreign buyers.
The new rules, which come into effect on 14 May, will see NAB only lend 60% of a property’s value to foreign buyers, down from 70% previously.
In addition, the major bank will recognise just 60% of foreign income sources, will no longer be accepting foreign sourced self-employed income, and will be tightening income verification requirements.
In a statement provided to Australian Broker, a NAB spokesperson said: “All foreign home loan applications are considered on a case by case basis and assessed under strict verification standards for employment and income, as well undertaking stringent risk processes.
“These settings are continually reviewed, and controls are tightened where necessary. NAB has limited appetite for this segment which comprises less than 2% of the NAB book.”
One mortgage broker, who asked to remain anonymous, also told the AFR that NAB would not be approving any loans to foreign buyers in “high-risk” areas.
These suburbs have yet to be identified, according to the AFR, but are expected to be inner-city areas in Melbourne and Sydney where there is a surplus of newly built apartments.
NAB’s decision follows announcements by Westpac and ANZ that they will be investigating mortgages backed by questionable foreign-income documentation, which forced them to stop approving such loans last month.
Bendigo and Adelaide Bank and Citigroup have also tightened lending conditions for foreign borrowers in the past week.
More Australian Banks Throttle Back Foreign Lending
More Australian lenders have taken a hard-line approach to foreign lending, stopping lending to foreign borrowers or excluding foreign-sourced income from mortgage applications amid growing concerns about fraud.
Citigroup wrote to mortgage brokers yesterday with a blacklist of foreign currencies it will no longer accept as payment for Australian real estate from overseas borrowers, the Australian Financial Review (AFR) reported.
The letter, sent by Citi’s head of mortgage distribution, Matt Wood, contained a list of 12 currencies that it will accept and warned that all others are “not negotiable”.
In a statement provided to Australian Broker, a spokesperson for Citi confirmed at least five currencies have been excluded from mortgage applications.
“We want to continue to ensure we have a robust and healthy residential loan book catering to foreign buyers. In light of recent industry concerns regarding foreign residential loan applications relying on offshore income we have excluded certain currencies to ensure we don’t attract any increases in unwanted loan applications.
“These currencies include the Chinese RMB, Indian Rupee (INR), Indonesian Rupiah (IDR), Malaysian Ringit (MYR) and Taiwan Dollar (TWD).”
Citi’s decision comes after Westpac and ANZ announced they will be investigating mortgages that have been backed by questionable foreign-income documentation, which forced them to stop approving such loans last month.
Bendigo and Adelaide Bank has also since warned its network of brokers to halt lending to foreign borrowers and exclude foreign-sourced income. In a statement provided to Australian Broker, a spokesperson said the non-major has received a “marked increase” in foreign applications.
“Bendigo and Adelaide Bank has always had a policy which allowed funding of expat Australian borrowers and, in certain circumstances foreigners to purchase property in Australia.
“This financial year, in the eight months to end of February 2016, this amounted to new lending advanced of less than $60m.
“In March and April following policy adjustments at other banks, we have seen a marked increase in enquiry and applications, exceeding our risk appetite. As a result we are reviewing our current position in the market.”
The chief executive of Mortgage Choice, John Flavell, told Australian Broker he expects more lenders to announce similar bans or restrictions.
“Given the recent developments, I am not surprised to see many of Australia’s lenders taking a hard line approach to foreign income lending.
“These policy changes will make it harder for foreign investors to purchase property in Australia using foreign income. Over the coming days and weeks, I expect to see more lenders tightening their policy in this area.”
Westpac halts property loans to foreigners
Westpac has announced it will no longer loan money to foreigners wishing to purchase residential property in Australia.
The bank and its subsidiaries (St George, Bank SA and Bank of Melbourne) ceased property lending to all non-residents and temporary visa holders as of April 26. Westpac is the third major bank to clamp down in this way, following announcements from ANZ and Commonwealth Bank earlier in April.
Australian and New Zealand citizens whose main source of income is from overseas will also be affected. They are restricted to loans for new housing only, with the maximum amount that Westpac will lend them falling from 80% to 70% of the total purchase price.
An email sent by Westpac to mortgage brokers said, “At Westpac, helping Australians to achieve their goal of owning a home or investment property is core to our purpose.
“For these reasons, Westpac will no longer lend to offshore customers who are not citizens or residents of Australia with an eligible visa.”
The news may spark fears of a slowdown in residential construction, with developers potentially taking a hit. In particular, Meriton has been targeting the Chinese market and may have to rethink strategy.
MFAA CEO Siobhan Hayden said of Westpac’s decision, “Westpac’s policy change… reflects a prudent decision for a more balanced portfolio at this time and reduced exposure for the bank.”
Foreign Investors in Victoria Get Stamp Duty Hit
The 2016/17 Victorian Budget will increase the stamp duty surcharge on foreign buyers of residential real estate from 3 per cent to 7 per cent, and apply to contracts signed on or after 1 July 2016. The land tax surcharge on absentee owners will also rise from 0.5 per cent to 1.5 per cent from the 2017 land tax year. The measures are expected to raise $486 million over the next four years. Treasurer Tim Pallas said “No Victorians will pay these surcharges. This is about ensuring foreign owners pay their fair share.”
The Andrews Labor Government is taking action to ensure foreign buyers of residential real estate contribute their fair share to the liveability of our state.
It is only fair that foreign buyers – who do not pay taxes such as payroll tax and GST – fairly contributed to the maintenance and development of government services and infrastructure, just like Victorian taxpayers do.
There have been sustained and strong levels of foreign purchasing of residential real estate in recent years. This increase will ensure a fair and equitable contribution is made by foreign purchasers of Victorian real estate.
Victoria’s surcharges on foreign owners of residential real estate have been in operation since 1 July 2015 and have had little impact on foreign demand for Victorian dwellings.
Commonwealth Bank tightens criteria on home loans for foreigners
The nation’s largest mortgage lender, the Commonwealth Bank of Australia (CBA), has announced that it is tightening its criteria for home loans for foreigners.
The CBA will no longer approve applications for home loans that cite self-employed foreign income, according to a note sent to mortgage brokers this week.
The bank also says it will no longer accept the foreign-currency income of temporary Australian residents. These individuals can also only borrow up to 70% of a property’s value, compared with the previous rate of 80%.
Home loan applications from foreigners make up a “significantly low proportion of our total home loan applications” according to a CBA statement, adding, “We constantly review and monitor our home loan portfolio to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs.”
The fact that home loans for foreigners make up a relatively small segment of the market means CBA’s new policy should not have major consequences for mortgage brokers, according to principal at Ocean Home Loans, Brad Kirwan.
“This is a very small part of the overall market,” he told Australian Broker. “Self-employed foreign investors are an even smaller part of that market. Most lenders won’t accept foreign self-employed income anyway – I’d suggest that CBA are aligning their policy with the other major banks so as not to be over-exposed to one particular type of applicant.”
When asked what steps brokers might take in response to CBA’s changes, Kirwan added, “There are several large brokerages that focus entirely on the Chinese market and have done very well over the past few years, they will obviously have to reassess how they do business in the future, for the majority of mortgage brokers it will be business as usual.”