Jane Lu: what the new vacancy tax means for brokers

The Australian head of international property site Juwai.com talks through the latest tax to hit foreign buyers

What Is It?

The vacancy tax would impose a cost on offshore owners who leave a property empty for six months or more per year. The fee would be equal to their for-eign investment application fee, which range from about $5,000 to $90,000, depending on the property’s value.

That may sound like it could scare away a lot of foreign buyers. Let’s look at it more closely to find out whether that’s true.

Just How Vacant Is That Home?

There are two big uncertainties underlying this tax:
1.    There’s no proof that many offshore owners leave their Australian property vacant.
2.    And, no one knows how to effectively impose such a tax.

In part, these unknowns explain why the government didn’t include any of the fine print in its budget proposal. Some academics have tried to solve the “Is it vacant or not” problem. They settled on measuring water usage to determine if a home is vacant or not. But, even with a relatively high cut-off point of 50 litres per day, only 4% or 5% of homes they tested used little enough water to be called “vacant” during their brief test period. 
That’s not many homes, but is also far more homes than are likely to be truly vacant over six months. A person who lives alone, uses the laundry down the hall, and sometimes showers at the gym probably uses fewer than 50 litres of water per day. By this reckoning, most homes occupied by Millen-nials probably would qualify as “vacant.”

Good policy makers learn from the experience of others. So let’s look at the experience of Vancouver, Canada. Vancouver has its own vacancy tax but is finding it incredibly painful to enforce. One local expert says Vancouver's tax is catching up many homes that aren’t actually “empty” and that belong to people born and raised locally. Australia’s policy may not have learned from Vancouver’s mistake.

The Vacancy Tax Vs. Foreign Buyers

The first thing to point out is that the government’s budgets haven’t exactly gone well during these past few years. More than $13 billion of so-called “zombie” budget measures that were never enacted still haunt the government. So, the federal vacant property tax may never be made into law. 

If it is passed, frankly, at Juwai.com we don’t believe it will impact many foreign buyers or generate much revenue. We feel most confident speaking about Chinese buyers because that’s the group we work with. About 31% of Chinese buyers are investors, not occupiers. Most of these are renting out their investment property, not leaving it vacant. They need their investment property to earn income. 

About three-quarters of Chinese buyers plan to use the property they are buying themselves, either as a full-time or part-time residence. According to the law, if you live in your home for at least six months a year, it doesn’t qualify as vacant.

The only group of buyers from China who might be hit by this tax are high net-worth individuals who have purchased a second home in China and prefer to leave it empty during those periods they are not living in it. For these buyers, the pain of paying the tax is likely to be less than that of having strangers rent out their home, which contains their personal art, furniture and family photos. 
In total, probably fewer than 5% of Chinese buyers fall into this category. That means the government’s vacancy tax —if it passes— is not likely to have much impact on Chinese buyers.

Opportunities for Brokers

Even though the vacancy tax may never ultimately be enacted, it has already created uncertainties for buyers. This creates an opportunity for mortgage professionals who want to work with these buyers to serve as their trusted advisors. 

I’ve provided some links below with more information about the proposed tax. Use this information to make yourself an informed and useful expert on whom foreign buyers can rely on for good advice on Australian property. This is the best way to win their loyalty and lucrative referral business.

Related Sources:
-   The official fact sheet on the vacant property tax.
-   ABC: Melbourne’s Lord Mayor says the plan won’t work.
-   Domain: Why people might leave a property vacant.
-   News.com.au: Some questions about the property tax proposals.

Jane Lu is Head of Australia for Juwai.com, the No. 1 Chinese international property website. She has nearly a decade’s experience in property and development. A native of China, Lu has deep insight into the motivations and resources of Chinese property investors. Find out more: https://list.juwai.com

 

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