Fees on Foreign Investors Won’t Address House Prices

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Thursday, February 26th, 2015
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New fees and penalties for foreign investors designed to make housing more affordable for Australians will have a “feel good” effect but won’t address the real affordability issues, economists say.

Prime Minister Tony Abbott  announced new rules for foreign property investors aimed at giving locals “the fairest possible go” at entering the housing market.  A new register will be set up to keep track of property bought by foreigners, who will be charged a $5,000 application fee when buying a residential property under $1 million.

For properties over $1 million it will be $10,000 for every extra $1 million in the purchase price.  The new fees will raise more than $200 million a year, which will go to better enforcement of the rules.

Anyone breaking the law will be fined up to 25 per cent of the value of the property and forced to sell it.  AMP Capital chief economist Shane Oliver said the new rules were a positive step but would do little to make housing more affordable.

“I think it’s more of a feel good factor that the government is tightening it up. I don’t think it necessarily solves the property problem,” Dr Oliver said.

“The problem is that we don’t build enough houses in Australia.

“Foreign buying of Australian property is really a bit of a sideshow in the context of all of that. It’s very regionalised, it’s mainly happening in parts of Sydney, parts of Melbourne, but it probably wasn’t having a huge impact on areas where first-home buyers buy.”

Market Economics managing director Stephen Koukoulas said having new fees that would help with keeping better records showing the true level of foreign investment in Australian property was a good start.

But he agreed it wouldn’t do much to make housing more affordable.

“The fact that we haven’t had a register of foreign holdings of property is an issue that had to be addressed,” he said.

“But if your main objective is to make housing more affordable for young people, do this, that’s fine, but you’ve got a lot more to do.

“We need to build more houses and make sure there’s not this silly leverage going on for investors who take advantage of the tax system to bid prices higher.

“Negative gearing is part of the problem and I think it should be phased out.”

 

By Belinda Merhab
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