Sydney's trophy market feels the effect of NSW government's foreign buyer tax

Despite 2017 marking a bull run of top-end sales in the $20 million-plus range, this year is the first time in five years in which there hasn’t been a single trophy sale to a foreign buyer, to date.

The last was the Point Piper waterfront home of luxury car importer Neville Crichton which exchanged a year ago for $60.66 million with Foreign Investment Review Board approval to Andy Wenlei Song. In 2015 there was the $27 million purchase in Rose Bay by British barrister Georgina Black and her husband, Telereal Trillium chief Graham Edwards.

And prestige agents say the dearth of foreigners at the top end is in large part thanks to the NSW government’s recently introduced tax slug on foreign buyers.

In July the state government doubled the existing 4 per cent stamp duty surcharge on foreign buyers, as part of an affordability measure to help first home buyers.

The day before the surcharge came into effect the upper north shore record was broken by the $12 million sale of the Warrawee estate Springfields to a woman from China with FIRB approval. Despite the home being well short of “trophy home” status, it was the last reported big-ticket deal to an offshore buyer.

It’s not just the lucrative commissions for prestige agents or windfall to trophy home owners that have been affected by the changes. Sydney’s cache as one of the world’s top emerging international trophy home markets could be collateral damage, according to David Chin, managing director of Australia and China research firm Basis Point.

“Have they overcooked things for that end of the market? I think they have,” said Chin. “Even the fabulously rich have their limits and Sydney isn’t the only glamour city on Earth.”

BIS Oxford Economics managing director Robert Mellor said that while he understands why the government introduced the extra charges, they probably did it “too late in the cycle when the market had peaked”. 

“People might think foreign buyers will just keep coming anyway, but if the market is no longer performing and yields are low then foreign investors aren’t going to opt into this market.”

Prestige agents say the high-end foreign buyer was missing in action during the recent Golden Week holiday celebrations, which in recent years has been noted for drawing a spike in foreign buyer activity.

The dollar figures give an indication as to why. Take the $71 million estate Elaine in Point Piper bought by Atlassian founder Scott Farquhar in April. If that property had sold to a foreign buyer the deal would have incurred a $700,000 fee to FIRB just to apply to buy it, an extra $10.44 million in purchase duty and premium property duty payable on foreign buyers, and a land tax of $1.9 million payable each year after that.

“That’s nearly a 16 per cent fee on a transaction with the annual stamp duty on top of that,” Chin said. “That’s a substantial price differential for a foreigner that will be difficult to recoup in future because of the deterrent on future foreign buyers.”

Chin added that foreign buyers have until now borne the more moderate 4 per cent stamp duty surcharge only because they faced similar fees in other international markets like Hong Kong, Singapore and Canada.

In 2013 Singapore boosted its foreign buyer fee added to the purchase price from 10 per cent to 15 per cent. Last year Hong Kong doubled its stamp duty on foreign buyers from 15 per cent to 30 per cent, and in Canada foreigners pay an extra 15 per cent tax on home purchases in Toronto and surrounding communities.

Questions remain as to how much longer New Zealand’s welcome mat will be out for foreign buyers after new Prime Minister Jacinda Ardern followed through on her campaign promise to address the home affordability crisis by last week announcing a ban on foreigners buying established property.

Craig Pontey, of Ray White Double Bay, is watching the impact the changes in NSW will have on the foreign buyer market carefully given he’s just listed the Vaucluse waterfront estate Phoenix Acres owned by Singaporean tycoon Chio Kiat Ow for $70 million.

“There has already been a lot of offshore inquiry on the property from China, particularly Shanghai and Beijing, and from a few New York buyers,” said Pontey.

“It’s to be expected that a lot of people from overseas are certainly exploring their options in Australia. They may not be ready to proceed on a deal here yet but it’s reassuring to know they’re at least eyeing us off. Have the new taxes gone too far to hurt that market? Time will tell.”

Locals take care of Sydney’s trophy home market

Meanwhile, it has been left to the local super rich to dominate this year’s top sales, led by Scott Farquhar’s $71 million purchase in Point Piper.

Among the tops sales are fellow BRW Young Rich Lister Patrick Grove who paid $28 million for a knock-down-rebuild in Darling Point and luxury car importer Neville Crichton’s sale of his Point Piper waterfront home for more than $36 million to property investor Andrew Potter.

Property developer Arash Tavakoli paid $30 million for a knock-down-rebuild on the Rose Bay waterfront and in Vaucluse press scion Alexander Ma paid $26.5 million.  

On the north side, Primo Smallgoods heiress Kristie Ward has paid more than $20 million for the Northbridge home of Robert and Kelly Salteri and property developer Bryan Rose has paid $22.45 million for a Mosman waterfront estate.

In 2014 one of China’s richest people Xu Jiayin paid $39 million for the Point Piper trophy Villa del Mare, only to be forced to sell it a year later for buying it in breach of the rules, and in 2013 the highest sale was the Point Piper mansion Altona for $52 million sold to Chinese businessman Wang Zhijun, who concealed his investment behind an elderly Melbourne woman to avoid foreign investment laws.