Western Australia’s residential sector could be facing up to 12 months or more of limited interest from Chinese buyers in the wake of the state government’s decision to increase taxes on offshore purchasers.
Earlier this week, as part of its annual state budget, the WA government announced that it would increase taxes on foreign purchases of residential property to 7 per cent.
The impost increase comes while Chinese interest in the state is beginning to grow, with international real estate portal Juwai.com reporting a 10 per cent rise in enquiry in WA properties in 2017.
But that increase is expected to be short-lived, if results following a similar tax increase in Canada are repeated in WA, according to Juwai.com chief executive Carrie Law.
Ms Law said Toronto property had emerged as an interesting case study for Australians curious to know how foreign buyer taxes influenced Chinese demand.
She said Chinese interest in Toronto properties “dropped like a bowling ball”, after a 15 per cent tax was imposed on foreign buyers in April last year.
“Chinese buyer inquiries halved in the two months after the tax was imposed and hit a low point in January, but they have grown over the most recent two months,” Ms Law said.
“Whether this upward trend continues for a third month, we don’t yet know. We expect a significant recovery in Chinese buying by year’s end, although not to the levels of April last year.”
Ms Law said other markets that imposed foreign buyer taxes, including Hong Kong, Vancouver and Singapore, had displayed similar patterns in Chinese buyer reaction.
“Chinese buying drops off precipitously in the short term, then partially recovers in the medium term, and can fully recover in the long term, although this depends on particular market dynamics,” Ms Law said.
“So, while we don’t expect Chinese offshore buying to recover to prior levels this year in Toronto, we do expect it to recover above the levels seen in the immediate aftermath of the tax’s imposition.”
The Toronto experience also may provide an insight into the potential effectiveness of WA state government initiatives to boost demand for residential property in Perth by attracting more international students.
“Before the tax, families tended to buy real estate as a first step towards the goals of education or immigration,” Ms Law said.
“Now, because of the tax, it is more common for the property to come later ― after they have already moved to Toronto and have permanent residency or citizenship.
“We also see purely investment-oriented buyers taking longer to make transactions in Toronto or deciding against it entirely.”