Fresh data on offshore property purchases shows the Western Australian government is playing a risky game with its decision to increase taxes for foreign property buyers.
Data from the Foreign Investment Review Board showed Chinese investors spent $15.3 billion on Australian properties in 2016-17 – more than 50 per cent down on the $31.9 billion spent in 2015-16.
Just 5 per cent of those transactions occurred in WA, the latest indication Perth is either unknown, or unwanted by Chinese investors.
The FIRB blamed its introduction of application fees for the plunge in foreign property purchases but said increased taxes in some states also had a considerable impact.
In that context, the WA government’s decision in May to increase its impost on foreign property purchases appears to be a head scratcher.
Chinese investors have already voted with their feet – Melbourne and Sydney are their clear preferences for property investment.
However, both of those residential markets are showing strong indications of having reached the peak of the price cycle, precisely the worst time for an investor to buy in.
Theoretically, that would open the door to other states to demonstrate a value proposition, but WA may have shot itself in the foot through its decision to increase its impost on foreign buyers to 7 per cent.
Perth is already the sixth-ranked preference for Chinese investors, not only behind Australia’s big iconic cities, but also Brisbane, Adelaide and Canberra, according to data from Juwai.com.
For a state already lagging, it beggars belief the state government would bring in a policy that would reduce competitiveness, particularly at a turning point in respective property cycles.
It is understandable the state government would seek any means necessary to boost its bottom line, with Premier Mark McGowan recently saying the state of ruin in WA’s financial accounts was “extraordinary”.
But the question must be asked whether increasing the foreign buyers’ impost is really the answer.
If anything, the state government should be looking for ways to make investing in Perth more attractive for offshore investors, not adding additional hurdles.
State government forecasts show the impost increase would bring in $123 million from 2018-19 to 2021-22, but at the same time, WA’s state debt is expected to reach $39.1 billion in 2018-19.
Those figures show the impost is not going to be a debt buster by any measure, rather it seems a move of desperation by a government that’s been dealt a dud hand.