New South Wales becomes the second state in Australia to impose a new property tax on foreigners buying homes in Sydney as soaring demand from China drives up record prices. It follows a clampdown on home loans to foreigners by the largest banks amid concerns that overseas buyers may be inflating a bubble in the property market.

According to a statement by NSW treasurer Gladys Berejiklian, this includes a four per cent stamp duty surcharge from June 21 and a 0.75 per cent land tax surcharge from next year on foreign purchasers. This is expected to raise more than A$1 billion in four years.

“For foreign investors, the motivation is fairly long-term and as such, the new stamp duty surcharge isn’t likely to be a major impediment as the tax is already north of 10 per cent in some parts of the world,” said Tony Sherlock, an analyst at Morningstar, Inc. In fact, he estimates that the annual land tax surcharge will have a bigger impact on foreigners as it will eat into record low rental yields.

“For the state government, there is an element of money grab plus the opportunity to generate some amount of political goodwill,” Sherlock added.

Thanks to purchases by foreigners especially from China, Sydney’s median dwelling value almost doubled since the end of 2008, triggering concerns that locals are being priced out of the market.

NSW homebuyers currently pay A$40,490 in stamp duty on a property worth more than A$1 million, plus 4.5 per cent of the value above A$1 million.

With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now