An interesting email hit my inbox regarding the resilience of Western Australia’s property sector, not long after the state opposition reignited debate over the appropriateness of applying a tax to foreign buyers of residential property.
The email contained the results of a 30-year study on Australian capital city real estate markets, singling out which cities were the hottest performers across five-year market cycles.
What stood out was that Perth had the best five-year period (between 2003 and 2007) of any city over the study, driven by record population growth flowing from the mining investment boom.
During that time, property prices in Perth increased by 140 per cent, the Property Investment Professionals of Australia study showed.
By comparison, Sydney – the city most property watchers would likely consider to have the nation’s hottest market – did not record five-year growth of more than 85 per cent over the study period.
The study showed Perth was never the worst performing capital over any five-year period, an indication the city’s property sector was able to hold value despite the resources-related boom-bust nature of the WA economy.
It should have also been a handy selling tool for real estate agents keen to introduce WA property to a new age of foreign investors seeking a value proposition outside of the rapidly peaking markets of Sydney and Melbourne – when Perth falls, it doesn’t fall far.
But the WA government’s insistence on installing a foreign buyer levy erodes that competitive edge somewhat.
From January 1, all offshore purchasers of houses in WA will be subject to a tax of 7 per cent of the property’s value, bringing the state closer in line with other jurisdictions in Australia.
For a government that seems desperate to repair its budget issues, that seems like a logical impost.
That is until you crunch the numbers.
Foreign buyers make up such a small proportion of the property market in WA (1.26 per cent in 2016-17) that the impost is likely to have little impact on the state’s finances.
The McGowan Labor government is dealing with a Liberal Party legacy of debt – $40 billion of it – and sees the foreign buyer levy as a sensible way to pay some of that down.
But its own projections indicate the impost is likely to raise only $123 million between 2019 and 2022.
That line of thinking also seems to downplay the impact investment in new housing, particularly by offshore purchasers, can have on a state’s books.
Even in the middle of one of its most prolonged downturns, the WA property sector contributes $31.8 billion annually to WA’s gross state product, 205,000 direct jobs and $6.4 billion in taxes.
In that context, wouldn’t a better budget repair measure be to provide incentives to stoke investment in new housing?
Surely that would have more impact than a tax that’s going to pay down 0.3 per cent of the state’s debt over three years?