It never rains, but it pours. This is an apt aphorism for Australia’s property markets right now, as the brakes are applied by both internal and external forces in a bid to slow the runaway real estate bandwagon every man and his dog has wanted to jump aboard in recent times.
Kicking everything off was the steady decline in interest rates that kept taking home loan deals to new historic lows. And just when you thought it couldn’t go any lower, the RBA decides it must to tackle deflation.
One thing the central bank seems quietly confident about is the slim chance of reigniting the smoldering spark under certain inner city housing markets (Sydney and Melbourne for those who haven’t been paying attention).
Perhaps this is because while they continue to slash the cash rate, lenders have been making independent rises on their commercial products and amending regulations around lending to property investors and in particular, foreign buyers.
This tightening of the financial sector’s collective purse strings under threat of action from industry watchdog APRA allegedly had the desired impact of derailing the runaway Sydney housing market in particular.
In April, reports suggested that Sydney’s median property price has fallen consistently since last October or thereabouts. And after hitting a peak of $1,045,000 in September 2015, the median has returned to under $1 million.
Now, with consumer confidence falling pre-election, as it’s wont to do, and would-be overseas buyers starting to think twice due to tougher bank bureaucracy, another blow has been dealt to Aussie real estate commodities.
Enter the taxman
Concerned that foreign homeowners have been selling Australian property and taking the proceeds back overseas with them, the ATO announced that as of July 1st, when a foreign resident sells an Australian property (and certain other assets), the purchaser must withhold 10 per cent of the purchase price and pay it straight to the ATO.
In other words, the vendor is immediately out of pocket by 10 per cent at point of settlement.
Who cares? This is only going to impact Chinese buyers, right? Well…no. This is where it gets even more interesting…because anyone who sells a property for $2 million plus will be classified as an overseas investor.
Yes…you read that right! What the actual?
So basically, if you buy a property from someone worth more than $2 million, the responsibility to retain 10 per cent of the sales price and then hand it to the ATO falls squarely on your shoulders. Didn’t know you were working as a collection agency for the government now, did you?
According to the ATO…”a vendor who sells the following assets is also a relevant foreign resident, even if they are an Australian resident for other tax purposes.” I kid you not!
Buyers who fail to receive a ‘clearance certificate’ from the vendor, or remit 10% of the purchase price to the ATO, will be liable to pay not only the 10%, but also additional penalties and interest.
We all pay the price…
Isn’t it fascinating that with one hand the government can open the floodgates of overseas investment in Australia’s housing markets to stimulate our economy, all the while attempting to stick a finger from its other hand in the proverbial dike?
For two years running there’s been a notable increase in both the number and value of foreign investment proposals here at home. Investment approvals shot up by 16.3 per cent from 2013-14 to almost 38,000 in 2015, representing investment dollars to the tune of $194.6 billion.
Something’s got to give. Or someone in this instance. So when all else fails, why not just decide Australians can also pass as foreigners, if it happens to suit the ATO?
Then you can conveniently palm off responsibility for collecting your CGT portion to any buyer acquiring real estate to the value of $2 million or more.
Foreign investment may be scapegoated and demonised as the harbinger of unaffordable housing. But it’s also gone a long way to ensuring our economic cogs keep on turning in the face of the breakneck mining sector slowdown.
Here’s hoping this new development doesn’t burst any bubbles.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).