Foreign investors in Victoria to face higher fee

Foreign investors in Victoria will face a higher charge on property purchases, under new rules introduced by the Australian state.

Foreign investment in Australia has rocketed in recent years, as investors seek a stable market, rising capital growth, and, in the case of many Chinese and Asian investors, a nearby asset.

That growth, though, has been met with some controversy, thanks to the country’s soaring property values and allegations that some investments in Australian real estate may have been illegitimate. Indeed, inbound investment from overseas is policed carefully, with the Foreign Investment Review Board approving each transaction. Conditions apply, including the banning of purchasing existing homes, unless in certain circumstances.

Now, after tightening the penalties for buyers breaking those rules, the state of Victoria has stepped up its regulations further: foreign buyers will now pay more for Victorian houses under an increase to property surcharges in this year’s state budget that is set to reap millions of dollars for the Government.

foreign buyers will now face a surcharge of 7 per cent upon transactions, up from 3 per cent, a move that could raise around $374 million for the state government in the next four years.

Treasurer Tim Pallas said local residents and citizens would not pay the increased charge.

“This is about ensuring foreign owners pay their fair share,” he told ABC.

“It’s only fair really that foreign buyers of residential real estate, who enjoy the capital growth as a result of Victoria’s liveability, the amenity of our cities, contribute to the maintenance of government services and infrastructure. These charges effectively ensure foreign buyers who don’t pay taxes such as payroll tax and GST until they reside in our communities, fairly contribute to the development and maintenance of government service and infrastructure just like Victorian taxpayers do.”

Shadow Treasurer Michael O’Brien has argued that the surcharge would be passed onto the state’s poorer residents who are renting, but Pallas denied the accusations of breaking a promise.

“No Victorian will pay these surcharges. We didn’t give the commitment to the world at large, we gave it to the electorate and we’ve honoured that commitment,” Pallas retorted.

The decision follows the publication of the FIRB’s figures for 2014-2015, which saw foreign investment soar 75 per cent, in terms of volume. Victoria and New South Wales are the most popular territories by far, as foreign buyers flock to Melbourne and Sydney. Victoria saw 16,775 approvals in 2014-2015 issued by the FIRB, totalling $31.27 billion – a figure beaten only by New South Wales, which saw fewer approvals (12,349) but a higher overall volume of investment ($34.94 billion).

See last year’s foreign investment in Australia’s real estate mapped, by area and property type, here.