The Canadian Province of British Columbia has become the latest legislator to attempt to curb inflows of foreign capital into its domestic residential markets. Last week, the B.C Province government took steps to ease pressures in Vancouver’s metropolitan real estate market with the introduction of a 15% stamp duty surcharge for foreign nationals.
The popularity and geographical scope of these policies continues to grow with Singapore, Hong Kong and Sydney the most commonly cited examples of foreign buyer surcharges.
But what about Europe?
Is the European continent correctly perceived as being “open for business” to foreign sources of capital?
Although there are no direct equivalents to stamp duty surcharges on foreign investors, several European countries do make it much more difficult for foreign buyers to snap up homes. Non-EU nationals are prohibited from purchasing a house in Denmark unless they have lived in the country for 5 years. Both Finland and Malta exclude EU citizens from buying secondary residencies in their markets.
However, a majority of European countries, ranging from Germany to Sweden, to France and the Netherlands, do allow overseas investors to buy residential properties with the same rights as native buyers.
What about the UK?
The United Kingdom, alongside 13 other European countries, places no restrictions of foreign ownership of residential property. In 2013, the former Chancellor of the Exchequer George Osborne did however close a loophole that allowed foreign investors to avoid paying any capital gains tax on the sale of residential properties. This policy drew applause from think tanks across the country but has also opened up the topic of foreign investment to greater scrutiny. In response, a myriad of policy proposals has evolved.
A sensible suggestion comes from The Bow Group, which argues that foreign residents should be limited to buying new-build stock. This suggestion draws parallels with Australian policy that permits foreign investors to gain access to its residential market only if their investment leads to an increase in the housing stock. With housing supply long falling short of what is required, any policy that could potentially both improve development finance while curbing high levels of price growth could be a winner.
What about Brexit?
While talking about large flows of foreign capital into the UK, it’s impossible to ignore the potential ramifications of the Brexit vote earlier this summer. A vote for Brexit may be interpreted as an endorsement for protectionism or a disapproval of globalisation; a process synonymous with foreign investment. But with around a quarter of last year’s capital investment in the British residential market originating from foreign sources, it is clear that the UK has been open for business. It is unlikely that as Theresa May’s premiership begins; it will do so by closing that door and throwing away the key.