Will increased land tax for foreign investors favour ACT home buyers?

Housing industry experts have spoken out against changes to land tax for foreign investors in the ACT.

On Monday, ACT Chief Minister Andrew Barr announced that from July 1 2018, foreign investors will be required to pay an additional 0.75 per cent on the average unimproved value on their residential properties in the territory.

Housing Industry Australia executive director of ACT and Southern NSW, Greg Weller, called the tax “a step backwards”.

“Foreign investors aren’t the reason we are having housing affordability issues in the ACT and putting punitive taxes on them won’t help fix that problem,” Mr Weller said.

“It may provide more revenue for the government but it certainly won’t help solve housing affordability.”

Property Council of Australia ACT executive director, Adina Cirson, echoed Mr Weller’s statement.

“These new taxes will not fix the underlying causes of high house prices and potentially further constrain supply,” she said.

“They potentially increase the cost of new housing, and we are concerned particularly about the impact on investment properties and the already tight rental market.”

Ms Cirson said it was important that investment kept flowing into the ACT.

“The ACT should follow the lead of other states, who have seen the benefit of exempting supply from the new taxes,” she said.

“Queensland, Victoria and NSW all created an exemption regime for developers with foreign ownership who are investing in the creation of new homes.

“In addition, it is important that the Australian-based companies, who might be foreign owned, are also exempted.”

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According to Mr Weller, foreign investors are beneficial to the local market.

“I think, in general, foreign investors have tended to be a force for good through adding additional supply to the market and reducing pressure on rental prices,” he said.

“We certainly shouldn’t be looking at discouraging foreign investment and I think we certainly haven’t seen any evidence in the ACT of a large number of foreign investors.”

Mr Weller said additional taxes could deter foreign investors, citing projects in Melbourne and Sydney.

“The other important part about foreign investors, which we have seen in Sydney and Melbourne, is that they are the difference between these projects going ahead or not,” he said.

“Foreign investors help to increase the number of presales so that financing will be available for the project.”

However, Mr Barr said the tax would have the opposite effect.

“Every Australian state and territory, except the NT, has a surcharge. The ACT surcharge is low compared to other states,” he said.

“Foreign investors currently make up a relatively small share of the Canberra housing market, but with the very large surcharges being applied in other states this is anticipated to grow in the future.

“There is no evidence of local projects being reliant on their financing. What this surcharge will do is put local owner-occupiers ahead of foreign investors when bidding for property in our market.”

The Foreign Investment Review Board’s annual report showed there were only 283 approved purchases of residential properties in the ACT in 2015-16.

Mr Barr said the ACT government made no apologies for favouring local home buyers over foreign investors.

“By implementing this surcharge on foreign investors, we are making it a little easier for local renters to become homeowners,” he said.