Prices have been cooling in Australia’s hottest real estate markets, a year after a government crackdown on foreign property ownership.
While increased enforcement is probably not the only contributing factor, the government’s efforts appear to be working, says a CIBC economist — who suggests it could be helpful for Canada to look at the example Down Under.
Last June, Australia’s then-Treasurer Joe Hockey told reporters that initial investigations found “a rich vein of opportunity in relation to the unlawful purchase of real estate combined with potential taxation fraud.”
Since then, the Australian government has investigated hundreds of property sales, and declared dozens of home purchases in violation of foreign ownership rules, Reuters reported. In some cases, the government has forced the sale of multi-million-dollar residential properties deemed to have been bought illegally.
In the wake of these developments, there have been “clear signs that Australia’s property market is cooling,” according to an HSBC report last month.
HSBC chief economist Paul Bloxham wrote in the note: “Housing prices have tracked sideways since about October 2015, following previous double-digit growth. Sydney and Melbourne, where the housing boom has been centred, have seen flat housing prices in the past six months, following annual averages of 10 per cent and six per cent in the previous four years.”
Benjamin Tal, the CIBC’s World Markets deputy chief economist, wrote in a report this week: “The issue of foreign investment in the real estate markets of Vancouver and Toronto dominates cocktail party conversations. The good news is that we are not alone. Newspaper headlines in Australia, New Zealand and the UK are very similar to ours.”
Tal said Monday in an interview that while it’s still early, the Australian government’s efforts since last year have probably contributed to the recently easing property prices there, and could continue to do so in the longer term.
“It’s too simplistic to put all the problems in Vancouver on foreign buyers,” Tal said.
“It’s Economics 101 – there is low supply. And there are many people who want to live there. So that’s the number one issue. Foreign buyers is the second thing.”
Australia has kept track of foreign property ownership data, Tal said, something Canadian officials have only recently started to take seriously. He added: “It’s not a secret that we haven’t done a good job of that for the last decade.”
It will take some time before Canadian authorities have the information they need, Tal said, but in the meantime, a “flipping tax” on foreign property buyers “would be a good start.”
“Any speculative activity by foreign buyers, we know that’s not a good thing. So we can easily go after that,” he said. “I am definitely calling for a flipping tax on foreign buyers.”