Australia reacts as foreign demand surgesNovember 21, 2016 / By
Offshore demand for Australian property assets has surged over the last three years with record demand for some asset types and locations.
In response, over the last 18 months, Australian Federal and State Governments have tightened regulations and increased costs for non-resident investors in Australian property.
Foreign investors have gone from a requirement to register with FIRB (Foreign Investment Review Board) with no fee a regime that now potentially involves a significant FIRB fee, state government surcharges and an ATO (Australian Tax Office) withholding tax. At the same time, Significant Investor VISA changes have made it harder to qualify for residency.
Figure 1: FIRB Approvals (Real Estate) by country of investor 2010-11 to 2014-15Source: JLL Research, FIRB Annual Reports
Chapter 2, Table 2.11
1. Foreign investment review board (FIRB)
FIRB approval continues to be required for all land acquired by a foreign government, all vacant commercial land and all residential property (the purchasing of established dwellings is generally prohibited). Thresholds apply for agricultural (new lower threshold) and commercial non-vacant land depending on the investor’s country and other factors.
Fees, introduced for the first time on 1st December 2015, range from $5,000 to $101,500 depending on land value and use.
2. Australian Taxation Office
All FIRB residential real estate functions have been transferred to the ATO including the administration of the new foreign resident CGT (Capital Gains Tax) withholding regime (contracts from 1 July 2016).
Broadly, where a foreign resident disposes of Australian property with a market value of more than AUD 2 million (USD1.5 million), the purchaser will be required to withhold 10% of the purchase price and pay that amount to the ATO.
A vendor can apply for a clearance certificate so that the purchaser doesn’t have to withhold this amount.
Figure 2: FIRB Approvals for proposed investment in Real Estate by type FY 2014-15
Source: JLL Research, FIRB Annual Report 2014-15
3. State Governments Transfer Tax (Stamp Duty) Surcharges (VIC, NSW & QLD)
The Victorian state government introduced a foreign purchaser stamp duty surcharge on 1 July 2015 on residential property. Since then Victoria has more than doubled this surcharge to +7% with effect from 1 July 2016. NSW and Queensland state governments have followed suit introducing +4% (21 Jun 2016) and +3% (1 Oct 2016) surcharges respectively.
4. State Governments Landholder (Land Tax) Surcharges for absentee owners (VIC & NSW)
From 1 January 2017, the absentee owner surcharge will increase from +0.5% to +1.5% for all Victorian land. Positive economic or community impacts may qualify for exemption. NSW introduced a 0.75% surcharge with effect from 31st December 2016 that applied to residential land only.
As expected, significant rises in land tax for Melbourne’s CBD office assets have come through in the 2016 notices payable 1 January 2017. Site values for selected office assets have increased by 5% to 150% over the 2014 to 2016 revaluation process. The recent regulatory changes will be an additional burden for the tenants of absentee owners. For absentee office landlords the land tax increases range from 23% to 240%.
In the short term these additional costs can be passed through to tenants as Melbourne’s CBD office market generally operates on a net lease basis. However, the new land tax surcharge could create a two tiered rental market and new lease terms that provision around recovery of Land Tax “Single Holding Local Resident Basis Only”.
Figure 3: Federal and State Government Rules and regulations for NON-residents
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