Are You Listening, Canada: Australia Slaps Chinese Home Buyers With New Taxes

Tyler Durden's picture

In a move that we strongly urge Canada (and every other nation which is the end-target of Chinese hot money laundering) to evaluate, Sydney announced it would impose new taxes on foreigners buying homes as concerns grow that a flood of mostly Chinese investors is crowding out locals and killing the “Great Australian Dream” of owning property. As Sydney prices rise to record levels - the Australian city is ranked only second to Hong Kong as major cities with the world’s least-affordable housing - new potential homeowners have been increasingly forced out of the market with foreigners blamed as a key factor the AFP reports.

We can only assume that China's infamous offshore money laundering nexus of Vancouver did not make the list because some Chinese oligarch paid enough money to make that particular city name disappear.


Sydney (pictured) is ranked only second to Hong Kong as
major cities with the world's least-affordable housing

As for Sydney, the crackdown on foreign oligarchs is long overdue: “the governments want to respond to a perception about housing affordability and the impact of foreign investment on that,” KPMG Australia’s indirect tax specialist Michelle Bennett said. “(Politicians) are raising money from people who aren’t voting, so superficially you can understand that it’s possibly not bad politics,” she added, but warned the measures could be a “blunt instrument” that could hurt the market.

As AFP notes, last year, leading apartment developer Lend Lease sold out more than Aus$600 million (US$445 million) worth of new units in Sydney’s Darling Harbour in under five hours, with the Australian Financial Review reporting that one-third of buyers were foreign. Lend Lease said the sale broke local records but such reports have also fuelled calls for government action to protect Australian buyers.

Prior to Sydney's move, other Austrlian states had already implemented protections and in response to China's unprecedented influx of cash, the New South Wales, Victoria and Queensland state governments have introduced or are set to slap new property and land taxes on foreign buyers, sparking an outcry from developers fearful that they will flee to other markets such as New Zealand and Canada. “It is very bad. Without the Chinese nothing would ever get built,” the country’s richest man and head of prominent developer Meriton, “high-rise” Harry Triguboff told the Australian Financial Review last week.

To emphasize his point, Trigubov decided that it's appropriate to swear: “Never mind the bullshit stories, sales volumes have already dropped and prices are coming down steadily. The Chinese buyers are already disappearing.”

We are confident millions of locals who are completely priced out of the market, would have a comparably angry response.

Furthermore, predictions of the collapse of Australia's housing market are greatly exaggerated: the proposed tax in Sydney’s New South Wales state to be announced this week would be only 4% , in Queensland it is 3% and in Victoria 7%. The island continent experienced an average 7.25% annual housing growth over the past three decades according to the central bank, attracting Chinese investment into commercial and residential real estate.

As AFP adds, the Chinese invested Aus$4.2BN in 2011-12, rising to Aus$24.3BN  in 2014-15 according to Australia’s Foreign Investment Review Board, making them the largest overseas buyers. But foreign investment - including in local firms and agricultural land - is politically sensitive and last year the national government forced some offshore owners to sell properties after tightening regulations.

Housing affordability, and the role of property investors, has also been a key battleground ahead of national elections on July 2.

Still, now that much Chinese demand will shift away, many are already lamenting the "inevitable" Australian housing bubble burst: "with housing prices appearing to be coming off the boil and the economy transitioning away from a mining boom, analysts say the state taxes could backfire.

“It’ll have ramifications down the track when the market goes through a pretty significant downturn in terms of construction and developers are finding it hard to get projects going,” BIS Shrapnel’s managing director Robert Mellor said.

 

Signs of a softening housing market could also be why states appear to be trying to “grab some revenue while it’s on offer”, leading property data provider CoreLogic’s Australia research head Cameron Kusher said.

In any event, it remains to be seen just what the impact of the next tax will be: “the people that are buying for the long-term... maybe at some point to migrate to Australia, I don’t think it would act as too much of a deterrent for them,” he said.

And should the Chinese balk at the Australian market, concerned about further tax increases and more punitive measures targeting foreign investors, the biggest losers would once again be Vancouver (and Toronto) residents, where home prices will get even more exponential-er, as every last Chinese buyer focuses on the one country that no matter how obvious the bubble, simply refuses to do anything and implement similar or not so similar taxes and other barriers to foreign purchases.

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Supernova Born's picture

Australia immigration rules make Donald Trump look like Mother Teresa.

Supernova Born's picture

Australian immigration rules make Donald Trump look like President of La Raza.

Déjà view's picture

Australia, Canada & New Zealand USED to be classical immigrant destinations, going there to contribute i.e. work and INTEGRATE, not hide illicit gains!  

These NEW SWISS BANK ACCOUNT nations pretend to be Disneyland® for very wealthy. Flash that corrupt cash for an all year pass with special priviledges, go directly to head of line at FANTASYLAND, as the rest get taken for a ride to FRONTIERLAND!

Freddie's picture

Isn't Canada still letting a lot of shit in?

roddy6667's picture

China has only issued 5000 Green Cards in all time. You have to bring in a LOT of money and jobs or have special technical knowledge to qualify. Outsiders in China, like me, have only temporary work or tourist visas.

They do not have Diversity. If you try to change the Chinese culture, you will be heavily fined and on an outbound plane. You can believe any religion or political nonsense you want, but the second you start trying to proselytize, you have crossed the line.

Time will tell how well this works. Democracy always turns into a live version of "Idiocracy". Watch the movie. It's happening now in America.

therealestg9's picture

Well Asian countries are exempted from the New World Order's diversity initiatives because, well, they aren't white. Also their main role is to provide cheap labor for Western corporations. As long as they keep doing that, the elites could care less whether they welcome refugees or not. But for Western countries, the plan of the elites is to force diversity upon us and reduce the white population.

therealestg9's picture

Well Asian countries are exempted from the New World Order's diversity initiatives because, well, they aren't white. Also their main role is to provide cheap labor for Western corporations. As long as they keep doing that, the elites could care less whether they welcome refugees or not. But for Western countries, the plan of the elites is to force diversity upon us and reduce the white population.

robnume's picture

Australia is making a very smart move. They are actually protecting their citizens against private property robbery and waves of illegal immigration.

Nexus789's picture

Not really. It's just another money grab by the politicians. They are not stopping anyone buying. The few illegal purchases that have been prosecuted are more to get the buyers to follow the program.

4freedom78's picture

Is not smart to stop the buying from foreign ether. The idea is to profit from it and bring benefits to the local like use this money to build affordable home reserved for Aussie. You can tax even 10%, rich Chinese and Indian won't stop to leave from their cesspool.

Aussie Battler's picture

Not really it's a light milking of the cow, not much more. Authorities are happy to still sell-out young Aussies through rampant immigration and money laundering.

GoldenDonuts's picture

Bullish for Vancouver house prices.

. . . _ _ _ . . .'s picture

Why hasn't this been done before?

THAT is the question. Cui bono?

O C Sure's picture

 

 

 

If the object is to deter "money" laundering, then attempting to penalize the end cannot at all address the means.

nailgunner44's picture

Queue pitz and the other disgusting yellow-scourge apologists in 3, 2, 1...

. . . _ _ _ . . .'s picture

Now that that's settled, let's get the hell out of NATO.

Supernova Born's picture

It is amazing how many houses are purchased and left empty.

Australia still acts like it is a country.

Paul Ryan is a traitorous piece of shit who can't wait to sell out Americans for a nickel.

Nexus789's picture

Probably 75% of the dog boxes built in Melbourne are empty based on water usage data. 

skbull44's picture

Many in Canada are in complete and utter denial. And it doesn't help when our complicit mainstream media offers analyses like this (Canada’s housing problem is supply, and the solution is local, not federal: http://www.theglobeandmail.com/report-on-business/rob-commentary/canadas...).
What's worse, in Ontario, our municipal taxes are tied directly to property assessments, that have just come out again (done every 4 years) and indicate an average 50% increase in 'value'. In the GTA. So guess what? Municipal taxes will be going up an equivalent amount. But bless the mighty politicians who have been kind enough to ensure the serfs that these increases will be 'phased in' over the next three years...just in time for the next assessment.

I can only guess what changes the criminals, er, I mean politicians will implement when this bubble pops and prices revert to a value more in line with stagnant wages and assessments plunge...

http://olduvai.ca

pitz's picture

Actually taxes in Canada do not increase with assessments, unless your individual assessment has increased faster than the average assessment.  So nice try, but higher house prices are not some magic boon to the municipalities.  Although higher prices do allow them to get away with passing larger tax increases without everyone feeling impoverished.  And the RE bubble certainly has kept revenues on account of building permits and land sales high.

TradingTroll's picture

My property tax always increased at over double the gubmint inflation  rate the last 10yrs.

 

Anyway, sold that  Vancouver home on Chinese New Year 2016 having had our first open the day before.

 

Vancouver  single family detached is down 12% annualized Jan-May. The correction  is on here. Realtors now boast if a house sold  for ask. Mortgage  brokers boast of accepted offers below ask.

 

 

pitz's picture

That's cuz the politicians have used higher prices as an excuse to raise taxes.  But that was a political decision, not an automatic indexxation of house prices to tax collections, which is the case in some parts of the USA where taxes are literally a percentage of the assessed value and scale with price increases and decreases. 

TradingTroll's picture

Show me one single price in North American  that doesn't have the influence  of a 'political  decision'.

 

I guess retiring in Mom and Dad's basement  means you don't have to spend time in reality!

skbull44's picture

Please read my comment again. I said Onatrio municipal taxes, not Canada. I know not how other provinces allow their municipalities to steal from property owners. In Ontario, municipalities get a huge tax revenue windfall with inflating property assessments. I just received a note from our local councillor who informed us that the first increase to municipal taxes will be over 12% next year--to be followed by another two years of similar increases because values have risen 47% in 4 years in our area. So, your criticism is very misplaced.

pitz's picture

Ontario doesn't handle things in any way fundamentally different in the rest of Canada.   There is no revenue windfall with inflating property assessments.  Property assessments only determine a pro rata share of a property taxpayers' obligation.

Your municipal taxes have only risen because the politicians decided to raise them.  Not because of an assessment formula that gives them automatic tax increases indexxed to property values.  Which, since the 2013 apex, would indicate flat taxes anyways.

skbull44's picture

You are correct that it is not automatic but I will bet you dollar to donuts that few, if any, municipalities will significantly reduce the tax rate used to lower taxes paid. There may be some symbolic reductions but certainly nothing close to what official inflation is. My municipality has averaged an increase double that of official inflation for years...

. . . _ _ _ . . .'s picture

"Many in Canada are in complete and utter denial."

Not denial, stupor.

Neochrome's picture

Makes sense. Why would anyone want all those loaded Chinese buying properties when you can have legal/illegal immigrants/refugees living on public assistance?

roddy6667's picture

Excellent point, Neochrome. They could have an extended family of Arab refugees who will promptly sign up for every public assistance program.

ChiefJerky's picture

Just got back from a week staying at an Airbnb unit in Melbourne. The condo building was probably built 3 years ago and every other "resident" I saw in the common areas was about 22 years old and Asian. No way these kids could afford these units. Brightside of it was the hallways perpetually smelled of delicious kung pao chicken and dumplings. Also, there were high rise cranes in the sky in every direction. This could get ugly.

Nexus789's picture

It will get really interesting as many investors will panic when the market turns. Could envisage lots of construction companies folding. Australia has a hidden problem with dubious mortgages that will only surface when the market turns down. Then there are the australian banks which are exposed.

They have turned some parts of the cities into eyesores with lots of tacky looking blocks.

Zang's picture

Correct Australia has a mortgage problem. 50% approximately of all Australian mortgages are interest only loans........ Tyhe only people who can pay cash is Asians and Politicians!!!!

roddy6667's picture

Interest only mortgages are only a problem when home prices go down. Then you are underwater instaantly. Anybody who has a regular mortgage and thinks they are building equity should go to a website that does financial calculations. You would be surprised how little equity you have built even after 10 years of paying.

With a $300,000 30 year mortgage @ 3.5%, after 10 years you would have paid down less than $70,000. At this point you are paying half to interest and half to amortization. You have probably paid out more than $70,000 in property taxes, repairs, and maintenance over 10 years.

Since most people move more often than 10 years, this is not that big a deal.

The biggest problem, IMHO, is that somebody who has no downpayment has not demonstrated any ability to save. Any unexpected change in income or expenses will cause them to lose the house.

Nexus789's picture

It will get really interesting as many investors will panic when the market turns. Could envisage lots of construction companies folding. Australia has a hidden problem with dubious mortgages that will only surface when the market turns down. Then there are the australian banks which are exposed.

They have turned some parts of the cities into eyesores with lots of tacky looking blocks.

thestarl's picture

>40% of all new residential mortgages now interest only

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) Jun 19, 2016 6:01 PM

We got to get the chinks out of the US housing market.  Now.

QE49er's picture

Monkey Hammer alert

CPL's picture

Yes, yes it is.  Going to get knocked out of the ball park this time with the bases all loaded and four getting to home plate.

SHRAGS's picture

It's all bullshit, they (Federal government) are now offering education visa's to "Guardians" of children 6 who can of course purchase a property, in order to maintain the ponzi.  USD $750,000,  won't get you much, average wage ~USD $55,000, the average Aussie is tapped out in Sydney.

The state governments are the ones adding the taxes (additional stamp duties and land taxes), not the Federal government.  These are the same governments that highly restrict the opening of new land releases and control development & availability of new land to force up the prices, and hence thier transaction taxes.  Local area council charges on land developer are also very high, once again inflating the price of land.  Blocks just realeased near me ( 1.5 hours south of Sydney are selling for AUD ~$290,000 for an eighth of an acre (500m2)

Turnbull opens new student migration scam floodgate: http://www.macrobusiness.com.au/2016/06/turnbull-opens-new-student-migra...
radbug's picture

Australia devoted every last cent of its capital on the China  Adventure (read commodities), now it has NOTHING, except a property bubble. Australia, like Canada, is caught between a rock and a hard place. This dilemma is the elephant in the living room that no major protagonist in the current federal election campaign dares discuss.

Handful of Dust's picture

20% - 40% first time purchase then a yearly tax 5 times the local native tax.

Sounds reasonable. Why not help the nations citizens ... for a freak'n change!

stacking12321's picture

yes it always "sounds reasonable" to let politicrats steal from others, so long as you're not the one affected by the theft.

funny how that works.

what is called taxation is nothing more than extortion / theft, don't be an apologist for such behavior.

 

Jack Oliver's picture

The government is trying to protect itself from the inevitable fallout !! I live in Sydney - I know what is coming - I bought 100 acres of mountain land and am going off the grid !

 

50% of Australian mortages are now 'interest only' - borrow a million - pay fifty thousand a year in interest - you have somewhere to live !

This is going to end very very badly when deflation hits - We lashed ourselves to Wall St and the Central Banks !!! We ALL know where this is going !

 

China is our biggest trading partner - Australia has sided with the US over the South China Sea - Trade with China is dropping at an alarming rate - Why would they deal with us - when their BRICS 'partners' can supply the same SHIT !

 

Our Government is an incompetent JOKE !

 

pitz's picture

Wouldn't make any difference to the Canadian market since there is almost no foreign "money" participating in it.   Foreign transactions in Canada make up less than 5%, and most of the 'foreigners' are US citizens, not Chinese.  Canada's RE market, which peaked in 2013, is levitated largely on account of local speculators, typically landlord extended families (East Indian in particular) who have large numbers of units and are not seeing much performance out of them given the extremely poor metrics (ie: negative cashflow in Vancouver!).  To keep their bankers happy, they basically have to flip amongst themselves to keep the valuations looking high.  This is where "assignment flipping" comes into play, to avoid land transfer taxes and capital gains taxes. 

 

The sales mix has also seen a dramatic shift as the entry level has dropped out.  Also contributing to the allegedly higher transaction averages.

Main_Sequence's picture
Main_Sequence (not verified) pitz Jun 19, 2016 6:31 PM
Chinese buyers responsible for one-third of value of Vancouver home sales: National Bank

http://www.vancouversun.com/business/chinese+buyers+responsible+third+value+vancouver+home+sales+national+bank/11804486/story.html

 

You were saying?

pitz's picture

That National Bank analysis has been shown many times to be a complete joke.   Its actually quite embarrasing that NA would allow their name to be on such tripe.