An apparent bid by the NSW Baird Government to slug cashed-up foreign property investors with a new 1.5 per cent surcharge in the next Budget to release some of the steam from Sydney’s pressure cooker residential property market has developers boiling  with anger and claiming the move will backfire and drive up prices.

With NSW Treasury now apparently preparing the ground to turbocharge already booming transaction tax receipts with an extra hit on overseas buyers, developer group Urban Taskforce says the revenue grab will actually increase if the availability of new dwellings falls.

“The argument for the surcharge seems to be to free up more housing for first home buyers by reducing the number of purchasers but this can only lead to less new homes being built,” said Urban Taskforce Chris Johnson.

“With an undersupply already pushing prices up a further reduction in supply is likely to only increase home prices.”

The lobby group estimates that with the Department of Planning estimating that the Sydney region requires 33,200 new homes a year but 27,348 being built in the last financial year, sending a price signal to overseas investors is the wrong message to increase housing supply because it will shrink the pool of available capital.

Aggravating matters are the recent spate of unpopular NSW council mergers, the sudden execution of which has created what many fear will be a go-slow in bigger planning decisions until new elections for merged councils in 2017.

“There has been a slow-down in housing approvals in NSW over the last 6 to 8 months and an additional tax on foreign investment in housing will only lead to a further slowdown,” Mr Johnson said.“Already Sydney has the council amalgamations causing some concerns over planning and discussion about adding value capture levies to new development beginning to affect confidence in the market so the possible extra levy on foreign investment will further erode industry confidence.”

“Already Sydney has the council amalgamations causing some concerns over planning and discussion about adding value capture levies to new development beginning to affect confidence in the market so the possible extra levy on foreign investment will further erode industry confidence.”

The potential for dwelling prices to keep going up, rather than coming off the boil, isn’t likely to bother Treasury too much – especially as state coffers also benefit from increased property values.

But Mr Johnson cautions that money from overseas investors shouldn’t be taken for granted, especially when it comes to propping up the supply side of the market.

“Foreign investors often help make development projects become feasible by underpinning the pre sales with up to 15 of purchases and this helps local purchasers buy into a viable project,” he said.