The clock is ticking. Come 1 July 2016, the 4% increase in stamp duty surcharge imposed by the Victoria state government on foreign property investors shall take effect. This increase, announced late April 2016, comes hard on the heels of the 3% stamp duty surcharge introduced on 1 July last year.
Victoria’s new stamp duty for foreign buyers of residential property is similar to changes adopted by the governments of Hong Kong, Singapore (and Malaysia), which charge an additional 15% stamp duty over and above the amount paid by domestic buyers.
Below is a FAQ detailing what the increase in stamp duty surcharge means for the foreign investor, and the implications to housing and investment into Victoria moving forward.
What is the new stamp duty rate imposed on foreign purchasers on 1 July 2016?
On 1 July 2016, foreigners will have to pay a stamp duty of 7% on purchases of houses, apartments and vacant residential zoned land in Melbourne and across Victoria. This is a 4% increase from the stamp duty surcharge introduced barely a year ago.
When does it take effect?
The new stamp duty surcharge applies to contracts signed on or after 1 July 2016.
Why is there a hike in stamp duty surcharge?
The Andrews Labour Government is taking action to ensure foreign buyers of residential property — who do not pay payroll tax and GST — contribute their fair share to the liveability of the state, and maintenance and development of government services. We believe that this new and rather sudden increment could be politically motivated: a federal election to determine all 226 members of the 45th Parliament of Australia will take place on Saturday, 2 July 2016 (one day after new stamp duty rate taks effect) after an eight-week official campaign period. This is Australia’s first double dissolution since the 1987 election. Yup, the stakes are high and this is a big deal, politically.
Statistics show that Victoria will have the largest population in Australia in the future, driven by massive and rapid growth in Melbourne city (source: CBRE). The Australia Bureau of Statistics projects that Melbourne will overtake Sydney as Australia’s biggest city in 2053. An increased population will lead to continual sprawl in the city and drive the demand for housing. And as migrants continue to move into Melbourne, there will be a greater need for rental accommodation.
With this increased surcharge, the Victorian government expects to raise $486 million over the next four years.
Are there any exclusions?
Yes; permanent Australian residents and New Zealanders will be excluded from the surcharge.
How does this affect the foreign investor and how should you take advantage of the situation in the short term?
(i) Save RM50K++ in duties*
Foreign investors are rushing to lock in their investments before the increased surcharge takes place. Timing is crucial and the window leading up to the surcharge increase, is small. If you have been thinking of investing in Melbourne property, now is a good time o decide. Acting quickly could save you more than RM50K++ in duties and ensure that you snap an investment in a good location.
For example, you could save approximately RM50K in stamp duties on a property worth $400K and about RM100K for a property worth $800K.
*dependent on price of property
(ii) Wise decisions go a long way
You should not invest for the sake of it or if you are not ready. We are strong advocates of making informed decisions: a thriving locality with potential for job growth, a growing economy, good amenities and increased infrastructure are key to a good investment. The best areas for investment and living in Melbourne are within the fringe of the CBD (click here to find out why). These include areas like Brunswick, North Melbourne, St Kilda and South Yarra, as well as landed housing across Melbourne, as they fetch better rental, capital appreciation and have higher chance of resale to Australians (by law, foreigners are only allowed to purchase brand new property. As such foreign investors can only dispose of their property to Australians who generally prefer to live outside the CBD).
What happens if you do not buy now?
You will merely have to purchase at a higher price, which means your rental return will be diminished. We stand by our advice to not be hasty, but to make informed decisions.
What are the ramifications of the stamp duty hike on foreign investment?
We foresee a slowdown in investments into Victoria and Melbourne in the short term. This could translate to a slowdown in construction of new builds, thus affecting supply of housing. This also means that Melbourne will become a more expensive city to invest in than Sydney, which is starting to see a comeback in investment. However, with the impending growth and changes in Melbourne, we feel that foreign investments into Victorian property will continue unimpeded in the long run.
CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential and purpose-built student property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts and due diligence.
Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.
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