Despite attempts to deter wealthy investors from buying homes in Australia, the number doing so is not falling with Sydney and Melbourne increasing popular with buyers from overseas.

The appreciating dollar and new taxes have not deterred overseas investors buying up luxury homes in these cities, which are placed sixth and 10th in the latest prime global cities property index from international property firm Knight Frank.


Expats are buying homes and also would-be expats regarding Australia as a good buy because of the currency differences, according to Michelle Ciesielski, Knight Frank's head of residential research in Australia.

'Foreign interest in prime Australian residential property has remained relatively strong over the past year, with many currencies holding an ongoing purchasing power against the Australian dollar,' she said.

'In saying this, more due diligence is being carried out by purchasers, particularly due to tax surcharges being introduced, stronger penalties being enforced by the Australian government for those who breach the rules, and the processing fee now payable for every application to the Foreign Investment Review Board,' she added.

Buyers from Asia and Europe seem to be particularly active and the wealthiest are looking for signature, luxury homes that may only come on the market occasionally.

However, there are warnings that foreign buyers are pushing up prices at all levels, and this means that first time buyers are having to pay more for a home. The latest housing data from real estate firm CoreLogic shows that in Melbourne prices in July were 15.9% higher than a year ago and in Sydney 12.4% up year on year.

The First Home Super Saver Scheme (FHSSS) aims to allow first time buyers to save for a deposit inside their superannuation account, attracting the tax incentives and earnings benefits of superannuation, and turbo-charging their ability to save.

The Government also released draft legislation to stop foreign residents investing in residential real estate, claiming the main residence exemption. It will stop foreign tax residents from claiming the main residence capital gains tax (CGT) exemption when they sell property in Australia from Budget night 2017.

Foreign tax residents who hold property on Budget night can continue to claim the exemption until 30 June 2019. The legislation will also modify the CGT principal asset to test to apply on an associate inclusive basis.

'This will ensure that foreign tax residents cannot avoid a CGT liability by disaggregating indirect interests in Australian real property. These changes to foreign investors buying residential real estate are part of a package estimated to add $600 million in revenue over the forward estimates,' said Assistant Minister to the Treasurer, Michael Sukkar.

'These important measures are part of the Government's comprehensive approach to housing affordability announced in the 2017/2018 Federal Budget that aim lower the cost of living for Australians,' he pointed out.

'Housing affordability is a major issue affecting many Australians and there is no silver bullet. The Government's comprehensive plan will improve outcomes across the housing spectrum from the homeless and those who depend on social housing, to first home buyers and older Australians looking to downsize,' he concluded.