Why Foreign Property Investor Tax Is a Bad Idea

If you haven’t heard, the government has proposed a new round of fees for foreign investors. Let’s face it they need to raise money and foreign investors are an easy target that doesn’t vote for them in any elections. However the impact on our property market will likely be very negative, potentially threatening our whole economy.

According to the proposal, any foreign investor who wishes to buy property in Australia that is worth up to $1million would be required to pay an application fee of $5,000 to the Foreign Investment Review Board. Investments over $1million would require even higher fees. Furthermore, foreign investors in breach of the rules would incur fines of up to 25% of their investments.

So how can some extra taxes not be good for our economy?

There are a number of reasons why this proposal is a very bad idea. For starters, we are likely to see a reduction in the supply of new property being bought and therefore built, meaning less supply and less construction occurring.

With less supply the average Australian can expect homeownership to come at a higher price as the foreign investor tax will likely force property prices up. Furthermore, fewer overall properties also mean fewer properties to rent, which translates into increased rent payments for tenants.

A reduction in construction would most likely stall our building industry, therefore ultimately hurting the economy. If this happens it will result in fewer jobs and higher unemployment rates, a trend that’s difficult to turn around.

The effects of a poor economy can be long-term. In general, the tax is basically another stamp/transfer duty that is already preventing many buyers from being able to afford the upfront costs associated with purchasing an investment property or a home. As short-term way to raise more revenue, this one is simply ill-conceived and can be expected to have more negative consequences than positive.