Property

Evolving Doors

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Approximately within the last five years, the transaction process has become more complicated and more expensive for Asian property buyers interested in prime investment destinations. Despite capital controls from the PRC (a maximum of US$50,000 per year), Chinese buyers have flooded into cities like Melbourne, Sydney, Vancouver and London, and in doing so have driven prices in those locations through the roof—or so goes the perception. The same accusation was levelled at PRC buyers regarding Hong Kong from the mid-2000s, as prices began creeping up at unprecedented rates
since 2003.

Some countries have implemented more aggressive measures. In Australia, extra purchase duties of up to 8% were levied in New South Wales (in 2017), 7% in Victoria (2016), and a stamp duty surcharge of 7% in South Australia as of 2018; Vancouver and Toronto tacked 15% foreign purchaser duties on all properties in 2016 and 2017 in Canada; there has been a 15% tax on houses since 2013 in Singapore for non-residents; and of course Hong Kong levied its own overseas buyers’ duty in 2012 at 15% as well. Most recently, New Zealand’s Overseas Investment Amendments Bill was tabled, which is designed to prevent non-residents from buying existing houses or residential land without permission, as well as compel buyers to prove a commitment to New Zealand. This is a part of the plans to increase housing on residential land, in addition to higher LTV ratios inposed in Auckland in 2016 and later rolled out nationwide. New Zealand’s (then) opposition National Party leader Bill English told Three television in January the extra rules were unnecessary to make New Zealand’s property market more accessible to locals. “We think the existing controls are sufficient. We don't think [Chinese buyers] have been a big influence in the market. You just need to build more houses—and that's already underway.”


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The New Zealand bill is targeting speculators, as are the other taxes, and aside from some immediate shocks to the system, they’ve done little to curb prices; supply-demand dynamics still matter the most. “These markets are popular with investors as they are seen as safe and stable investments,” argues David Faulkner, Managing Director, Valuations and Advisory Services, Asia at Colliers International. “The impact of higher taxes is to reduce liquidity, not prices.” In many cases these investment destinations also have strong historical connections to Asia and solid education facilities—still major drivers for potential investors.

Most analysts agree that the point of stamp duties on foreign buyers is to deter speculation and bring prices under control so that domestic buyers have a chance to get a foothold in the market. Speculation, which is rooted in demand, can indeed drive prices up, but local buyers feeling like they’re being priced out of their home markets make for cranky voters. The taxes are a response to the perception that foreign buyers are driving up prices; this is not necessarily reality, and sometimes is even an obsolete measure. In 2015, the UK imposed a capital gains tax on property owned by foreign nationals—something that has never happened before. The idea of being exempted from capital gains taxes was ludicrous. That tax wasn’t making overseas buyers a target; it was making them equal, and it had little impact on UK residential investment from abroad.

By the same token, alternative locations such as Greece, Portugal and Malta have been offering golden visas—right of residency with potential for European Union citizenship in the future—to Chinese investors for many years. With attention concentrated in gateways like Athens, Lisbon and Madrid (minimum investment is usually around €500,000, or HK$4.7 million), application for citizenship can begin from anywhere between the first to the tenth year of arrival. Those countries had few barriers to begin with, but aggressive marketing campaigns had been rolled out during the last recession, and overseas buyers effectively bailed all three countries out of bankruptcy or default out of the EU. At the end of 2016, the visa programmes have netted Portugal over €2.5 billion, €1 billion for tiny Malta (where the buy-in is a steeper €1.5 million), and pushed Spain’s GDP to 3%.

The wild card in all this is the previously welcoming USA, where the expired EB-5 visa programme could see its investment commitment go up from the current US$500,000 if renewed—or it could be repealed under the Trump administration. Over 80% of all EB-5 applications have come from Chinese nationals since 1990. In March last year, Republican representative Steve King released a statement saying, “Under the Obama administration’s unconstitutional and open immigration policy, applications for EB-5 visas suddenly skyrocketed. The result is they are selling access to citizenship and selling it cheap.” Stay tuned: midterms are on the way.  

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