A new foreign investor surcharge to be introduced in South Australia has raised the concern of the real estate industry, with representatives warning the way the tax is being implemented could harm the state’s real estate market.
On November 15, SA Treasurer Tom Koutsantonis announced the state would beef up the 4% foreign investor surcharge proposed in the July state budget, and instead implement the charge at 7%.
The surcharge will act in addition to stamp duty and applies to all contracts executed by foreign investors after January 1, 2018.
While the duty is in line with foreign investor surcharges applied in NSW (8%) and Victoria (7%), the South Australian version will see investors who have already signed contracts but are yet to finalise the sale, required to pay the tax.
Real Estate Institute of South Australia president, Alexander Ouwens, labelled the changes “disingenuous”, noting the treasurer had previously called other states xenophobic for implementing similar costs.
“Now they’ve brought it in themselves,” he said.
But he continued the real problem lay in the fact the charges applied to contracts already in existence, and examples of the impact were already filtering in.
“We’ve heard of one foreign investor who purchased an apartment off the plan 2½ years ago. Now it’s going to cost $130,000 more than it was going to be. They would not have bought this property if they had known.”
And Mr Ouwens noted the impacts would likely extend throughout the industry, spreading to developers planning new apartments in the city.
“There was a push to bring vibrancy back into the real estate industry and the CBD was starting to gain momentum. But now that tap’s been turned off.”
The changes were particularly surprising considering other recent government initiatives like Ten Gigabit Adelaide, which were designed to draw people into the city from all over the world, showcasing the destination as a “smart city” that was open for international business, Mr Ouwens said.
“That was a brilliant idea that welcomed the international community with open arms. Now those same investors are being slugged with a massive price hike. It’s a mixed message to say the least.”
Carrie Law is the CEO of Chinese international property website Juwai.com, and she noted the method of implementation saw the SA government going back on its word, taxing buyers who had already signed contracts.
“Chinese buyers, of course, accept that as foreign buyers they may need to pay extra stamp duty. But no one likes being tricked.” Ms Law explained.
“Adelaide is proposing to tax people who accepted, who signed purchase contracts with the promise that their transaction would not be taxed.”
Ms Law continued, the planned surcharge set up a situation where buyers may feel wary about future investment in the state, knowing the paying field could shift without warning.
“The federal Treasury has made very clear that foreign buyers do not compete with first-time buyers. By contrast, [the] Treasury found that foreign buyers help first-time buyers by enabling the construction of more supply.
“Adelaide is the fourth most popular Australian city for Chinese buyers, after Melbourne, Sydney, and Brisbane.
“Seventy-three per cent of the Chinese buyers who look at Adelaide are actually purchasing for their family’s own use. Of course they expect the property to be a good investment, but that’s only secondary. These are not speculators or property bankers.
“Just over one-quarter are buying for their children to occupy while studying in Adelaide.
“Almost one-third of the money that this country earns on exports comes straight from China. Clearly, anything South Australia can do to improve its ties to China and to bring more Chinese residents to Adelaide will mean a higher quality of life and more opportunity for everyone in the state.”
The South Australian Department of Treasury and Finance explains the surcharge is calculated based on the value of residential land and is in addition to any stamp duty payable.
For example, if a foreign investor purchases residential land valued at $600 000, the taxes payable will include $26,830 in stamp duty plus an additional surcharge or $42,000 (7%), making the total sum payable $68,830.