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New NSW legislation to subdue residential market growth, but likely to support new commercial and industrial property investment and
In an ongoing bid to restrain the rampant residential property growth that has seen double digit growth of capital values in Sydney since the upturn in late 2012, the NSW Government has new and recent legislation that will impact on future capital returns of residential property.
Recent tightening of lending to both local and overseas investors by the Australian Prudential Regulation Authority (APRA) has seen significant slowing of growth in dwelling values over the three months to end of May. As affordability factors results in investors demand exceeding owner-occupier, and Government implementing it’s housing affordability package, Sydney has shown no growth and Melbourne only 0.7% (CoreLogic Hedon Home Value Index).
In a bid to support home ownership in NSW and Metropolitan Sydney, the Liberal Government has further increased levies on foreign purchasers (non-residential persons or entities) aiming to raise $2 billion to subsidise struggling first home owner buyers.
Despite the introduction of the stamp duty surcharge, there were more overseas investors than first home-buyers entering the market in September Quatre 2016.
The Foreign Investment Review Board (FIRB) reported an increase in dwelling approvals in NSW to 9,811 approvals valued at $9.02 billion (more than Melbourne’s approvals valued at $6.87 billion).
Key new legislation from 1st July 2017 likely to impact the residential market in NSW is four-fold:
- Foreign Investor Surcharge duty will double from 4% to 8%;
- Annual land tax surcharge on foreign buyers will rise from 0.75 to 2 % per annum;
- First Home Buyers will be exempt from paying stamp duty on both existing and new dwellings worth up to $650,000;
- A $10,000 First Home Owners Grant will benefit developers of new properties worth up to $750,000 and purchasers of new properties up to $600,000;
- All home buyers will benefit from the removal of the 9% duty of lender’s mortgage insurance saving up to $2,900;
The new levies further burdens foreign investors of residential property in Australia. In May, the Federal Government increased the CGT withholding rate on foreign investors to 12.5% and has reduced the withholding threshold to $750,000 from 1st July 2017. The ‘Ghost Tax” of $5,000 for dwellings that are vacant for more than six months per year will be levied. In June 2016, the NSW Government introduced a 4% additional surcharge on foreign purchasers of residential property.
The property industry has strongly rebuked these further restrictions on foreign investors as counterproductive and populist. According to the OSR data the largest group of foreign investors were Chinese (32.8%), followed by British (11.4%) and New Zealanders (11.0%) in the July Quatre 2016. It is argued that these new measures will limit the new residential supply and rents in Sydney impacting Sydney’s Department of Planning’s target of 40,000 new dwelling a year.
Considering the current cycle of the residential dwelling market and further planned legislation that will limit residential capital growth, the weight of investment capital is likely to continue to consider retail, commercial office and industrial property opportunities in NSW, especially considering the absence of onerous restrictions on foreign investors applied to residential property.
NOTE: This information is understood to be from reliable sources and is not to be construed as investment advice. Expert investigation and independent due diligence should be undertaken by all parties prior to any agreement to purchase, develop or dispose of property.
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