Comparing foreign buyer stamp duty. Does stamp duty really work?

Many countries around the world have introduced foreign buyers’ duty on the purchase of the residential property. This article looks at comparing foreign buyers’ stamp duty and examines if they actually work?

What is Foreign Buyers Duty

Foreign buyer duties have been introduced by many countries around the world. The surcharges were meant to prevent local first homebuyers from being priced out of the market by making it more expensive for foreigners to purchase property and create an ‘even playing field’ where first time buyers could better compete with well-heeled foreign investors.

Comparing Foreign Buyer Stamp Duty and the costs

Australia and Canada were some of the first countries to introduce foreign purchaser duties but now these are relatively common in many markets around the world, particularly those markets which attract a significant amount of foreign investors such as Hong Kong and Singapore. Western property markets including Australia, Canada, and England also have foreign buyer stamp duty.

CountryForeign Purchaser DutyDate Introduced
Australia7 – 8% in addition, to existing Stamp Duty depending on the state.1 July 2016
Canada15% in Toronto and Vancouver2 Aug 2015
England2% in addition to 3% second home buyer Stamp Duty1 April 2021
Hong Kong15% plus additional second home Stamp Duty5 Nov 2016
Singapore30% in addition to existing Stamp DutyDec 2011
Source: Du Val Global (www.duvalglobal.com)

What proportion of the Market are Foreign Buyers

Many countries have introduced these huge taxes on foreign buyers, but how many buyers are actually offshore?

Australia

The number of foreign buyers in Australia has reduced significantly. Recent figures from the Foreign Investment Review Board show international investment in Australian property has dropped from $8.5 billion in the 2017-2018 financial year to $6 billion in the 2019-2020 financial year. In addition, the total number of transactions reduced over the same period from 10,491 to 7,482. Of these transactions, 88% were in Victoria, NSW, and Queensland and 85.6% of the buyers were for new dwellings or vacant land.

Australia - Comparing foreign buyer stamp duty

Canada

Housing data on international owners in Canada is relatively difficult to obtain, this is in part because many international investors such as those in Hong Kong have Canadian passports. According to a report done by StatisCanada non-residents owned approximately 7.9% of condominiums in Vancouver and 7.2% of condominiums in Toronto.

England and Wales

In England and Wales, the number of properties owned by foreign investors has almost tripled since 2010, with close to 250,000 residential properties owned by individuals overseas. However, the reality is these buyers amount to about 1% of all registered titles. Of these properties, the vast majority are located in London and are purchased by Hong Kong nationals who account for about 31% of all international buyers in the city.

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Singapore

According to research by Edmund Tie’s Private Homes Report (2020), foreign home purchases fell by 26.1% to just 215 units in Q1, 2020. And as a proportion of all residential sales, foreign purchasers account for just 6% of all property purchasers with the majority of purchasers made up of Singaporeans (78%) and Permanent Residents (16%). Of these international buyers, 25.6% are Chinese, followed by Indonesians (14.1%), Malaysians (8.3%) and Americans (8.3%).

Have Foreign Buyer Taxes Made a Difference?

Imposing foreign purchaser taxes is great for politicians to get media coverage, but have these taxes cooled their respective property markets and made housing more affordable for first-time buyers?

  • Australia – although additional stamp duties have been imposed on foreign buyers, they have done little to dampen price growth in primary markets. In the past 10 years some of Australia’s capital cities have seen significant growth in capital values with Sydney (146.4%), Melbourne (90.2%), Hobart (117.6%) and Canberra (108.2%) all almost doubling in value.
  • Canada – has some of the highest rates of foreign purchaser stamp duties (15% in both Vancouver & Toronto). However, according to the Federal Reserve Bank of St Louis the Canadaian House Price Index has increased by 60% in the past 10 years for all residential housing in Canada. In Toronto, the growth has been even higher with the Average Sale Price more than doubling from $464,989 in 2011 to $1,095,412 in 2021.
  • England – perhaps somehwat ironically, of the 5 markets compared the England property market has had the lowest overall growth. Even though it has the lowest foreign pruchaser surcharge at just 2%, house prices have grown by just 43% over the past 10 years.
  • Singapore – Singapore is ranked as the second most expensive property market in the world, even with its whopping 30% surcharge on foreign buyers. Although the market has seen some slowing of growth it has recently experienced significant surges in pricing. The index has increased fron 137.3% in Q1, 2011 to 173.6% in Q4, 2021.

The reality is that foreign purchaser surcharges have done little to dampen property markets they simply grab headlines.

What role do Foreign Purchasers Play in the Housing Market

Whilst much is made of the negative role that foreign purchasers play in the housing market, which at best is simply overstated, very little is made of the important role which foreign purchasers play in the delivery of new housing.

The reality is that foreign purchasers are in fact critical to the delivery of new housing, particularly for large format residential developers where pre-sales are a critical component in their funding.

Lease extension

A recent report by the Property Council of Australia with respect to Western Australia found that although stamp duty revenue had not changed since the implementation of the foreign buyer’s surcharge, there has been a fall of more than 62% for property transactions. It concluded that the hopeful local investment that this surcharge was meant to encourage, has not happened.

Instead, the surcharge has created barriers for both locals and migrants, as the flow-through impact of delayed residential developments has meant that any new rentals entering the market cannot meet demand.

If instead, the surcharge was to be removed, the Property Council of Australia suggests, to encourage foreign investment, a majority of the apartment developments currently facing a seven to 12-month delay could finally reach the presales needed to commence, as well as support the development of new projects.