Australia slaps tax on 'ghost homes'

It wants to curb rising empty vacancy rates with levy on foreign buyers

SYDNEY • On a wet, midweek evening when most Australians are home cooking dinner, less than a third of the lights are on in the apartments in Melbourne's Docklands.

Most shops and restaurants are closed. The only people passing through seem to be on their way elsewhere.

These "ghost towers", as the high-end residential property with three-bedroom apartments costing almost US$1 million (S$1.4 million) have been dubbed, are popular with Chinese investors who mostly live abroad. Their darkened blocks loom as sparsely occupied symbols of a property market where even solidly middle-class households have increasingly found themselves priced out.

Now, policymakers are seizing on public resentment and hitting foreign buyers with more taxes. New South Wales has doubled its surcharge on purchases of residential property by foreigners and Western Australia has added a new tax.

More controversially, both the conservative federal government and the left-leaning one in Victoria state, that includes Melbourne, this year imposed additional taxes on properties deemed to be empty for six months or more.

Australia's moves are part of a growing global trend, primarily in response to the massive amounts of capital that have poured out of China and into real estate around the world.

  • 19%

    Rise in empty properties in Melbourne since the last census five years ago.

    15%

    Increase in empty properties in Sydney since the last census.

    25%

    New home purchases by foreigners, mainly from China, in New South Wales, in the year through September last year.

    16%

    New home purchases by foreigners in Victoria, in the same period.

Additional taxes targeting vacant homes are already in place in Vancouver and some London boroughs, with Toronto and Dublin considering similar moves.

An analysis of Australian census data by the City Futures Research Centre has found more than one in 10 homes unoccupied on the night of the count last year, with empty properties having risen 19 per cent in Melbourne and 15 per cent in Sydney since the last census five years previously.

Foreigners, mainly from China, purchased 25 per cent and 16 per cent of the new housing supply in New South Wales and Victoria, respectively, in the year through September last year, according to a Credit Suisse examination of state tax receipts.

Melbourne's tax of 1 per cent of an empty home's value takes effect next January, adding to a nationwide tax imposed in May that starts at A$5,500 (S$5,900) and scales sharply upwards for properties worth more than A$1 million.

The median price for a home in Sydney has doubled since 2009, according to data tracker CoreLogic. More than 60 per cent of Sydney residents blame foreign investment for the rising prices, according to a survey by University of Sydney academic Dallas Rogers.

The idea of taking prime real estate out of the housing supply and leaving it vacant has become a focus of anger as homelessness has risen and hundreds of people have been camping in the rough outside places like the Reserve Bank of Australia.

For wealthy Chinese investors, more taxes may be just another cost to take into account.

With a two-bedroom apartment in Sydney and Melbourne costing 25 per cent less than in Shanghai, according to Credit Suisse, the Chinese have found Australia to be among the world's most attractive places to park cash as their home currency was declining and as they sought to diversify wealth overseas.

But despite public sentiment to the contrary, it is unclear how much foreign buying contributes to rising property prices.

A recent government paper concluded that foreign money can be blamed for no more than A$122 of a quarterly price increase of A$12,800 over the five-year period it studied.

Tighter capital controls in China, along with Australian banks' decision to stop lending to offshore buyers combined with the effect of the stamp duties and other taxes may also soon start to bite, if they have not already.

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A version of this article appeared in the print edition of The Sunday Times on September 24, 2017, with the headline 'Australia slaps tax on 'ghost homes''. Print Edition | Subscribe