If Australia follows Canada's policy it would fail, he says
Experienced property buyers agency owner Arjun Paliwal has criticised calls from some in Australia to follow Canada, which has introduced a two-year ban on foreigners owning property to boost housing supply.
After Canadian Prime Minister Justin Trudeau’s long-awaited foreign ownership ban took effect at the beginning of the year, other countries suffering similar housing crises – including Australia – have been calling for their own governments to implement a similar policy.
However, some industry experts maintain the position that Trudeau’s ban is a misguided solution to a domestic housing shortage, and countries following suit would fall into the same pitfall of thinking the plan solves anything at all.
When the Canadian government’s policy was announced, which includes taxing existing foreign-owned vacant properties, there were many people on social media in Australia calling for the same ban here as well as vacant home taxes and levies imposed on full-time Airbnbs.
But Paliwal (pictured above) is not a fan of the policy. He’s the founder and head of research of Sydney-based property buyers agency InvestorKit, which he set up more than four years ago. Prior to this, Paliwal worked in various roles for CBA for seven years.
“Australia following along with other countries on a ban for foreign buyers of property would be a decision that is misguided and one that would not make any meaningful difference to housing affordability,” Paliwal told MPA.
Paliwal said the Australian government has long established a publicly accessible, yearly register of foreign ownership of residential land providing transparency into foreign investment in Australia.
The register showed that from July 1, 2020, to June 30, 2021, only 5,310 residential real-estate purchase transactions involved foreign ownership for a total value of $4.2 billion.
“CoreLogic estimated that more than 550,000 properties were sold during that period,” Paliwal said. “This equates to circa 1% of total transacted stock. Clearly, many are misled by the volume of transactions by foreigners.”
Paliwal also observed that from July 2020 to the end of June 2021, the purchase of new dwellings made up 68.6% of all purchase transactions, while the purchase of established dwellings and of vacant land constituted the remaining 13.4% and 18%, respectively.
“This means foreign buyers are supporting housing supply creation, as only 13.4% of a very small base of transactions go on to compete in the established market,” he said.
Australia already made the property-buying process difficult enough for foreigners with existing regulations and the costs of surcharges and taxes, Paliwal said. “Adding a ban would do little to nothing for greater housing affordability.”
Paliwal acknowledged that that were significant hurdles for prospective home buyers in the current market but there were more viable solutions to the multi-faceted issue than a foreign-housing ban, such as the NSW government’s recent stamp duty reforms.
“The stamp duty changes NSW has implemented should be cast wider across different buyer groups and states,” he said. “Barrier to entry is a big hurdle for prospective buyers with current price points across many parts of the country. This will substantially aid that for a short-term boost [in housing affordability].”
Over the long term, however, Paliwal said “larger lending changes” needed to take place.
“Things like assessment rates are chewing away at borrowing capacity,” he said. “Many banks are assuming borrowers need to pay loans of 8% to 10% rather actual rates of 4.5% to 6.5%. With many economists and researchers including myself feeling that interest rates would not reach 8% to 10% for consumers, reductions to more realistic assessment rates would free substantial capacity for prospective buyers.”
Paliwal also said more should be done to boost Australia’s housing supply, including reducing red tape across the planning and building industry and providing incentives to invest in Australia’s property market – both privately and at an institutional level – to grow the country’s rental stock by reducing the many extra charges and barriers to entry.
He is also in favour of a tax on vacant homes, such as that introduced in Victoria. “Vacant homes add no value to the market, bringing this tax across Australia would have greater gain than downside,” he said.
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