Australia has announced plans to make foreign property buyers pay a fee before they can transact business after complaints that foreign homebuyers in general, and Chinese buyers in particular, are pricing Australians out of their own property market.Â
Tony Abbott, the prime minister of Australia, said the government was proposing a range of fees and civil penalties to deter foreign buyers.Â
One possibility is that a foreign investor who wanted to buy property worth less than A$1m ($785,000) would have to pay a A$5,000 application fee. Investments worth more than A$1m would incur a A$10,000 fee for every extra million dollars.
Abbott said the measures were not aimed at any one country, but anger has been growing at Chinese involvement in the country’s housing market, especially in Sydney. Transactions involving Chinese buyers rose 60% last year.
The investment surge is part of a general overflow of capital from China’s domestic construction and property market: by some reports the Chinese have built 3.4 billion homes for its 1.3 billion people, and these is continuing concern about the future value of all this property.
As a result, investors from mainland China have become big overseas property buyers in many parts of the world, including the UK and the US, where they accounted for sales worth $22bn last year, a quarter of all foreign purchases.
The process has been accelerated by the fall in property prices brought on by the housing crash of 2008: prime real estate in Los Angeles is about 25% cheaper than a roughly equivalent lot in Shanghai.Â
The move follows the introduction of similar taxes in Hong Kong and Singapore aimed primarily at discouraging the flood of mainland Chinese money into those markets.Â
Singapore increased its surcharge on foreign buyers from 10% to 15% last year – although American citizens are exempt under the terms of a bilateral trade treaty. Hong Kong also charges a 15% stamp duty on transactions involving foreign buyers, including mainland Chinese.
So far, the UK has not followed suit, despite the fact that 70% of all new-build homes in London are bought by overseas investors.Â
Photograph: Sydney, where Chinese buyers are blamed for a 14% rise in property prices last year (Rodney Haywood/Wikimedia Commons)
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The cure for inflated real estate prices from both native and foreign buyers is a Land Value Tax. The LVT adjusts automatically upward as speculation causes prices to rise and if high enough will actually work to curb speculation without reducing building (as measured by permits). It does this by simultaneously UNtaxing buildings. This encourages building and discourages hoarding and speculation in land prices. China needs to do this to flush out the excess prices in its own housing bubble, and Australia (or London, NYC or any highly desirable dense urban area) needs to do this to make housing affordable and available to the middle class again. Instead we often have the reverse: perverse incentives like huge tax abatements (up to 95% in NYC) on some of the priciest real estate in the futile hope that developers will put that excess profit from uncollected land rent into affordable housing. Instead, in NYC, we lose $1.1B/year in tax revenues just on this tax abatement alone, while overseas billionaires buy up 7, 8, and in one record-setting recent example, even 9-figure ultra-lux condos they won’t even live in. New York Magazine called these “Stash Pads” in a recent cover story on this practice.
My presentation to the Henry George School exemplifies case studies like this: http://www.opednews.com/Diary/Case-Studies-in-New-York-C-by-Scott-Baker-Georgism_Henry-George_Land-Value-Taxation-141024-865.html