Treasurer Scott Morrison has predicted that foreign buyers will fall by over half this year in response to high state taxes and a crackdown by the Australian Tax Office on buyers who try to avoid Foreign Investment Review Board approval.

NSW surcharge is now above Victoria which charges 7 percent but it is still below comparable international jurisdictions facing a similar flood of foreign buyers. In Canada some provinces charge as much as 15 percent. The tax charges are in addition to normal NSW stamp duty of as high as 7 percent.

The impact of foreign buyers on the NSW housing market is hotly contested. Foreign citizens accounted for about 11 per cent of home purchases in NSW in the September quarter last year, according to NSW government data.

But only about 2 per cent of NSW home buyers paid the surcharge because it does not affect foreign citizens provided they are permanent residents who have been been present in Australia for 200 days in the preceding year.

In 2015-16 FIRB approved about 13,000 purchases by foreigners in NSW, about a third of the 40,000 foreign residential approvals nationwide. FIRB's definition of foreign buyers is slightly different to NSW. Mr Morrison says the total number of foreign buyers will fall to 15,000 this year.

The FIRB data suggests that the vast majority of foreign buyers come from China.

Some have argued that foreigners buy the equivalent of a quarter of new housing constructed in NSW.


The tax hikes are expected to raise $1.9 billion over the next four years for the NSW budget, compared to $150 million raised from the 4-percent tax which was announced in last year's budget.

NSW Premier Gladys Berejiklian says housing affordability is her top priority. Nick Moir

The Federal budget introduced a requirement that foreigners could buy only 50 percent of any new apartment block in a measure which was also supposed to improve affordability for Australian residents.

John Cunningham, president of the Real Estate Institute of NSW said he viewed that announcement as "political" rather than a "practical" solution to NSW problems. He said if the government succeeded in curbing the number of foreign buyers it would not raise the revenue it was expecting and it would slow the construction of new developments.

He said cutting the number of foreign buyers would make it harder for property developers to secure bank finance because banks require pre-sales to lend and foreigners are a key pre-sale market. "If we cannot get enough new stock coming out of the ground, that's going to put upward pressure on prices and rents," Mr Cunningham said.