Western Australia’s state government has moved to increase taxes on foreign purchases of residential property, at the same time that Perth was listed in the top 25 on a global ranking of top-performing premium housing markets for the first time.
WA Treasurer Ben Wyatt announced changes to the state’s planned implementation of a foreign buyer’s tax today, increasing the surcharge which will take effect from January 1, 2019 from its previous 4 per cent to 7 per cent.
The impost will be restricted to residential property, while commercial property or significant residential development sites would be exempt.
However, data from the Foreign Investment Review Board shows that while the surcharge will bring WA in line with other states, the state is not expected to secure as much revenue from the impost as other locations.
FIRB data showed there were 1,646 approvals for offshore investment in real estate in WA in 2015-16, collectively valued at $3.65 billion.
The majority of that investment was for development sites, with FIRB approved investments totalling $3.28 billion, while there was $370 million worth of established property sold to foreign buyers over the period.
If there was a 7 per cent surcharge applied to those purchases, the WA government would have secured revenue of around $25.5 million in 2015-16.
The WA state government said by increasing the surcharge to 7 per cent it would increase estimated revenue from the initiative to $123 million from 2018-19 to 2021-22.
In New South Wales, FIRB approvals totalled 12,931 for a value of $20.65 billion, while Victoria attracted 17,525 foreign purchasers over the same period, collectively totalling $28.06 billion.
Foreign buyer tax revenue in NSW equated to around $1.44 billion in NSW and $1.96 billion in Victoria.
“Increasing the Foreign Buyers Surcharge to seven per cent will bring Western Australia in line with other states and provides this government with additional revenue to help the state’s financial position,” Treasurer Ben Wyatt said in a statement.
“Importantly, this decision increases a surcharge that will only apply to foreign investors. Western Australian households and businesses will not pay the surcharge.
“It is fair for foreign owners of residential property, who benefit from our services and infrastructure, to make a contribution to budget repair.”
Real Estate Institute of Western Australia president Hayden Groves said the timing of the impost would be problematic for the state's housing sector.
"Taxes imposed on foreign buyers are excusable when property markets are flourishing and foreign buyers are pushing up values, but not when they're struggling like ours is," Mr Groves told Australia China Business Review.
"It'll mean that at Perth's median house price of $520,000, a foreign buyer will pay about $56,000 in duty; a significant disincentive to invest here.
"It will also mean small-scale medium to high density developments needing pre-sales will be harder to achieve given developments over 10 lots will be exempt from the additional tax.
"This means the 'missing middle' of housing typologies in Perth will continue to fall short, giving Western Australians limited choice between either an apartment or detached house, contradicting the government's own policies around infill development opportunities relating to Metronet.
"We may also see a shortage of investment stock develop, pushing up rental prices as supply shrinks."
WA’s shift in policy coincides with Knight Frank’s release of a rankings index on global luxury housing markets, in which Perth was ranked 21st.
Prime property prices rose 2.8 per cent in Perth in the year to March 2018, Knight Frank’s Prime Global Cities Index showed.
Overall, the index increased by 4.8 per cent over the year, with Seoul the leading city after recording 24.7 per cent growth, driven largely by increases in value in Gangnam.
Guangzhou was ranked third, with 16.1 per cent growth, to be the highest-ranked Chinese city, followed by Hong Kong at 13th and Beijing at 14th.
Australia’s highest-ranked city was Sydney, where luxury housing prices were up 8.7 per cent to rank 9th, while Melbourne was close behind at 10th, with a gain of 8.3 per cent.
Brisbane also made its debut on the index at 19th, recording an annual gain of 3.6 per cent.
Knight Frank’s index measures the performance of the top 5 per cent of the housing market in each city.