Australia introduces new tax regime

Foreign property fund investors in Australia are set to benefit from a change in the tax system which will give the country one of the most competitive withholding tax rates in the world.

In a blatant bid to attract more overseas investment in trust funds the government has decided to slash taxes charged to foreign investors. Currently just 3% of money in Australian property funds comes from abroad.

The tax, which was 30%, will now be progressively reduced to 7.5% by 2010. Real estate experts say it will significantly boost the property markets in Australia. 'These arrangements will make Australia's withholding tax rate one of the most competitive in the world. The arrangements will ensure Australian property trusts are well placed to attract foreign investment,' a treasury spokesman said.

The executive director of the Property Council of Australia, Trevor Cooke, welcomed the news as the high tax level had been a discouragement to overseas investors. 'This will be a much needed boost,' he said.

Rory McLeod, national director for research with Colliers International confirmed the scheme was likely to attract investors to the housing market.

It is also regarded as part of a bid by the recently elected centre-left Labour government in Australia to make the country a financial services hub for the Asia Pacific region.

The news comes at a time when the Australian property market is expected to weather the global credit crunch well compared with other countries.

'There are fundamental differences between our housing markets and those of the US and the UK,' said John Edwards, CEO of Residex, 'In the US and the UK population growth rates are falling, while Australia's population is booming. Population growth directly creates housing demand and we're experiencing our fastest population growth in two decades.

Also whereas population is ageing and Baby Boomers are approaching retirement in the US and UK, Edwards noted that Australia is 'rejuvenated' by the arrival of about 180,000 mostly skilled migrants. 'These new arrivals offset the effects of the Baby Boom retirees, keeping our median age younger than either the US or the UK. They fill new employment opportunities and are creating the highest demand for new housing in our history,' he concluded.

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