The Australian implementation of a vacancy tax ‘intensifies’, targeting foreign investors with idle properties — Sydney’s auction clearance rate reaches 61%.

Week’s Key Focus

The Australian government is planning to tighten regulations for foreign homebuyers in response to the increasingly severe housing crisis. According to The Sydney Morning Herald, the Albanese government is expected to introduce new regulations next year that aim to encourage foreign investors to utilize their Australian property purchases rather than leave them vacant. This new policy will result in higher costs for foreign buyers who purchase and leave properties unoccupied. Application fees will be raised to three times their current amount, while vacancy fees will increase sixfold.

The policy will only apply to properties bought after May 2017. The current regulations require foreign investors to pay an application fee linked to the price of the property when purchasing existing residential real estate in Australia. For example, for a property valued between $1 million and $2 million, the application and vacancy fees are both $28,200. Under the new plan, if foreign investors purchase an existing property valued at $1.1 million, they will have to pay an application fee of $84,600, and if the property remains vacant, an annual vacancy fee of $169,200.

It is important to note that overseas investors purchasing new residential properties, while still required to pay an application fee, will not face an increase in this fee; therefore, the vacancy fee they face will also be relatively lower. This move is to stimulate investment in new residential constructions, and the federal government has also announced a cut in the costs of “build-to-rent” schemes to keep them at the lowest commercial level.

Treasurer Jim Chalmers and Housing Minister Julie Collins, in announcing these changes, pointed out that the measures will be accompanied by stricter enforcement to ensure compliance. They emphasized that the changes aim to encourage foreign nationals to purchase new constructions and ensure that those who are approved follow the rules. The increase in fees for existing residences is designed to encourage foreign buyers to invest in new housing development projects, thereby creating more housing stock, construction job opportunities, and supporting economic growth. At the same time, the purpose of increasing the vacancy fee is to encourage foreign investors to put their idle properties on the rental market.

Despite the potential of increased fees to encourage more foreigners to rent out their properties, the report notes that the overall impact on housing supply and rental prices may not be significant. Foreign investors already face numerous hurdles when purchasing existing homes in Australia, and non-permanent resident foreign investors must sell their properties once they leave Australia.

Data from the Australian Taxation Office shows that only 1,339 existing homes were purchased by foreign investors during the 2021-22 period, which is a small fraction of the over 500,000 properties sold each year in Australia. In the last fiscal year, the Tax Office collected approximately $5 million in vacancy fees and issued 23 penalty notices totaling $511,000 for violations. These measures reflect the Australian government’s resolve to address the housing crisis, ensuring properties are put to reasonable use through stricter regulations and fines.

Auction Results Last Week

Sydney: Out of 844 properties that went to auction, results for 562 were reported, with 341 properties sold, giving a clearance rate of 61%. The total auction value amounted to AUD 383,001,138, with a median house price of AUD 1,468,000;
Melbourne: There were 1,117 properties auctioned, 844 of which had reported results. A total of 483 properties were sold, resulting in a clearance rate of 57%. The total auction value reached AUD 374,649,842, with a median house price of AUD 950,000;