Australia to penalise foreign real estate investors

The Australian government seems to be playing to the crowds with under pressure Prime Minister Tony Abbott announcing plans for new charges for foreign investors looking at real estate and increased penalties. Just a few weeks after an Australian government report suggested that foreign investors are having little or no impact on the overall Australian real estate market it seems that appealing to the Australian public is more important?

While there is no doubt that the rise in Australian property prices has been impressive and left many potential first-time buyers with nowhere to go, is this really the fault of foreign investors?

Are current regulations strong enough?

When you bear in mind that non-resident foreign investors are not able to buy an existing home in Australia and those on temporary visas of more than 12 months are forced to sell their home upon expiry of their visa, what is the justification for this change in policy?

It is also worth noting that the authorities have confiscated property in the past which was acquired illegally although surprisingly there have been no government sales of illegally acquired property since 2006. Many experts believe that this lack of activity in releasing confiscated property back into the marketplace is also pushing prices higher and not helping the situation.

Increased fees

Foreign investors will now be obliged to pay a $5000 application fee when buying a residential property valued at under $1 million and this will increase by $10,000 for every additional $1 million. Those found to be abusing the system could be fined up to 25% of the value of the property in question and forced to sell. On the surface it looks as though the authorities are clamping down on foreign investment activity but let’s not forget that Australia has benefited enormously from general overseas investment in recent times.

Experts believe that upwards of $200 million in additional fee income could be reinvested into ensuring that foreign ownership rules are applied more strictly. So, when you consider that the potential net income from these additional charges, and penalties, would be zero, why are the authorities going through the process?

Are first-time buyers really struggling?

There is no doubt that in some of Australia’s more affluent areas there are limited opportunities for first-time buyers as prices are pushed higher and higher. The common myth that foreign investors are fuelling this growth in property prices was debunked just a few weeks ago although the Australian government seems to have conveniently forgotten about this report. It is not only Australia which is seeing troubled times for first-time buyers, with similar problems occurring in the UK and many other areas of the world.

The rate at which property prices in Australia have risen in recent times has far outstripped the increase in household income and general wages. Even though some expect the Australian economy to slow down in the short to medium term, it would take a serious reduction in property prices to see some of Australia’s more prominent cities emerge back on the radar of first-time buyers. In many ways this move by the Australian government is seen as a means of gaining public support at a time when Tony Abbott is under enormous political pressure. However, many experts simply see it as window dressing with no real benefit to anybody.