The Western Australian Government seems to be playing a very risky game with foreign investors, proposing an increase to the foreign buyers surcharge from 4% to 7% for residential property purchases.
The proposal – to be introduced on 1st January 2019 – aims to raise an estimated $123 million in revenue over the next four financial years. This effectively puts Western Australia’s surcharge levels in line with Victoria and South Australia, and only 1% below the New South Wales foreign investor surcharge.
These new changes have been harshly criticized by the property industry. The Urban Development Institute of Australia (UDIA) CEO Allison Hailes has said the “WA property market is in a completely different situation to those on the east coast and we don’t have anywhere near the level of foreign investment that those states do.”
The effects of previous increases to the foreign buyer surcharge in the eastern states have not fared so well. The latest ANZ/Property Council Survey revealed following the surcharge increase in New South Wales, effective from 1 July 2017, the capital growth expectations for New South Wales plummeted well into negative territory. The June 2018 expectation index decreased by more than 40 points when compared to the same time last year. The Victorian market can be seen to be still feeling the aftershocks of their surcharge increase in 2016, with the June 2018 expectation index decreasing by 14 points over the last 12 months.
As for Western Australia, their house capital growth expectations have been on the rise over the last 12 months. However, based on the NSW and Victorian case studies, the WA housing market is expected to follow the same downward trend as its eastern neighbours. This creates considerable risk in terms of growth for the real estate industry, especially given Western Australia’s current period of economic recovery.