Federal Budget 2017 – Impact for Property Developers

19 May 2017

In the 2017 Federal Budget, there has been a strong focus on the foreign ownership of property in Australia and there are a number of key changes developers selling overseas should be aware of. 

Currently, property developers can obtain a new dwelling exemption certificate which acts as pre-approval for the sale of new dwellings in a particular development to foreign investors without the investors requiring their own foreign investment approval.   Currently the certificates do not restrict the proportion of dwellings that may be sold to foreign investors.  The implementation of a 50% cap on foreign ownership in new developments is proposed by the new budget with the intention of making new dwellings in new developments more readily available to local Australian residents.  This will be implemented through applying further conditions on new dwelling exemption certificates.  It is important to note that this 50% cap will apply solely to multi storey developments that have at least 50 dwellings.

In addition to the above, the 2017 Budget introduces measures to discourage foreign investors from leaving residential properties vacant.  The Government intends to implement an annual charge on foreign investors where the property is not occupied or available for rent for at least six months every year.  This is intended to increase the number of homes that are available on the Australian housing market for rent and will take immediate effect. 

There has also been reform to reduce the avoidance of Capital Gains Tax in Australian by foreign investors.  The Capital Gains Tax exemption will no longer apply to foreign and temporary tax residents when they sell property in Australia. However, foreign and temporary tax residents who currently hold property are able to claim the exemption up until 30 June 2019.  The withholding rate for foreign resident and capital gains tax will also be increased from 10% to 12.5%, in addition to reducing the threshold from $2million to $750,000.00.  These changes will be implemented from 1 July 2017. 

The 2017 budget presents significant implications for both foreign investors and developers who target overseas markets. When added to the additional rates of duty recently imposed on foreign buyers by several States, the additional costs and charges of investors buying into Australian property start to add up. 

While it is largely unclear what impact this will have on housing affordability and availability for Australian residents, anyone seeking to develop and sell property to foreign markets should be mindful of the proposed changes above when marketing their next project. 

Should you require any additional information or advice in relation to the new requirements or any other property or development queries please contact a member of our property team:

Matthew Shannon, Partner: (07) 3307 4506 or mshannon@shandtaylor.com.au

Richard Waring, Partner: (07) 3307 4545 or rwaring@shandtaylor.com.au 

Jacob Bowman, Lawyer: (07) 3307 4503 or jbowman@shandtaylor.com.au  

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