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Foreign investment slumps in Victoria’s commercial market
International investment in Victoria’s commercial property market has fallen dramatically over three years, driving industry calls to reduce foreign investment taxes to retain global investors.
Global investment in Victoria’s commercial property market has dropped sharply over the past three years, prompting industry calls to cut foreign investment taxes to retain international investors.
According to the latest Attracting International Capital report commissioned by the Property Council of Australia, global investment in the Victorian property market has dropped by 53 per cent, from over $10 billion down to $5 billion in three years.
The report found that Victoria’s land tax surcharges have had a significant negative impact on the state’s commercial and large-scale development market, deterring major global investors.
Property Council executive director, capital markets, Torie Brown, said the tax had created an unnecessary obstacle for foreign investors looking to enter one of Australia’s largest markets.
“Investors are sophisticated. They want to invest in states where policies are predictable and taxes are fair,” Brown said.
In addition to the standard land tax and trust surcharge rates, foreign investors who purchase in Victoria are slapped with an additional four per cent surcharge, known as the Absentee Owner Surcharge.
The surcharge applies when a property is purchased by an investor who does not reside within Australia.
While Queensland has a similar tax, it applies only when foreign direct investment (FDI) reaches a 50 per cent stake in the asset, whereas Victoria imposes the tax on any level of foreign involvement.
Property Council Victorian executive director Cath Evans said Victoria used to be a magnet for global capital, and changes brought about by the government could help return it to its former glory.
“These taxes are holding back billions of dollars that could be creating jobs, housing and infrastructure.”
The report suggests that removing the surcharge could see around $5.7 billion in FDI return to Victoria by 2030.
Additionally, if other states were to follow suit by repealing similar taxes, it could bring more than $8 billion in FDI into the national economy.
Brown said that for every $1 the government spends to remove the tax, up to $10 could flow back into the economy.
“While these taxes were initially introduced to limit the ability of foreign nationals to buy up established houses they wouldn’t live in, these taxes also significantly stymie the money needed to supply new Australian property,” Brown said.
Across the country
NSW remains the top state for global investment per capita, with an average of $1,191 per person.
Despite a drop in investor interest, Victoria still holds second place with an investment of around $690 per capita.
Queensland narrowly misses out and claims third place, with an average of $685 per person, while Tasmania recorded the lowest level of international investment, with an average spend of just $23 per person.
Brown said global investment is necessary to sustain growth in the Australian property sector.
“Global investors who want to deploy capital to build homes and city precincts at scale should be encouraged, not turned away.”
She said state governments should focus on promoting foreign investment to boost the economy rather than slowing it down through taxation.
“This is not about crowding domestic investment out, but is about using other people’s money to build world-class Australian cities.”
“Global investors go where they are welcome, but Victoria has shut the door,” Brown concluded.