While interest from foreign investors in Australian property has remained strong, HLB Mann Judd warned that tax increases could see demand shift to other markets.
In spite of a range of challenges including pandemic-driven uncertainty, HLB Mann Judd Melbourne partner Josh Chye has suggested that demand and interest in Australian property from foreign investors remains strong.
“New enquiries from mainland Chinese investors have scaled back significantly but other parts of the Asia-Pacific region, including Singapore and Hong Kong, are consistently strong and Australia remains an attractive jurisdiction despite the relatively high taxation rates,” he said.
“This provides strong support of Australia’s property market despite concerns about rising interest rates or an economic downturn.”
Mr Chye pointed out that Australia has among the highest rates of taxation in the region for both individuals and corporates alongside above average tax costs for foreign buyers of real estate.
He indicated that increasing tax costs had become a cause for concern and frustration among some foreign buyers who could unexpectedly face higher costs including stamp duty or land tax.
“While the high tax rates are a consideration for many foreign buyers, this is balanced by the fact that Australia remains a stable jurisdiction for real estate investors. Price growth, particularly in Sydney and Melbourne, has also driven interest from foreign buyers,” Mr Chye noted.
“However, if there continues to be a trend of continued tax increases or removing of tax concessions solely focused on foreign investors, this will no doubt hurt Australia’s reputation and standing as a stable jurisdiction for foreign investors into Australia and other markets such as United States, Canada and the United Kingdom will increasingly look more attractive as also alternative destinations for real estate investments.”
While residential property prices in Sydney and Melbourne have started to decline, Mr Chye said that the recent stretch of strong growth meant that the local market was still attracting foreign investors.
“The recent harsh lockdown restrictions in China have created more interest in investing here. The key challenge is not the desire but the ability for foreign capital to be physically transferred here, as certain countries have tightened their controls around money leaving the country,” he suggested.
Additionally, Mr Chye argued that recent market uncertainty globally would most likely not have an impact on interest in Australian property assets.
“Inflation and interest rate increases are common across the globe so if rates go up, it will put pricing pressure on property, however the demand will still be there,” he said.
“The pricing pressure will be global so from that perspective, it should not detract from investors looking to acquire Australian property assets.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
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