The controversial state government-imposed charges will raise about $330 million over four years and apply to foreign nationals who purchase houses, apartments and vacant residential-zoned land in Victoria.

Property Council of Australia deputy executive director Asher Judah slammed the new fees, describing them as a "king hit" to the real estate industry.

Non-residents buying property will be slugged the equivalent of 3 per cent of the purchase price. The surcharge will apply from July 1. Also, an absentee land tax of 0.5 per cent will be applied from 2016 to foreigners who do not occupy the new or existing dwelling they have purchased, which Treasurer Tim Pallas said would deter so-called land banking.

The reaction came as the Abbott government on Saturday announced a crackdown on foreign investors who have illegally bought Australian real estate.

Investors will have until November 30 to come clean and sell their properties or face potential prosecution. Australia's investment regime generally does not allow foreign investors to purchase existing homes. For people who break the rules, penalties will be tougher under the crackdown, including possible jail terms.

Under legislation to be introduced  this year, penalties will be increased to $127,500 or three years' jail for individuals, and $637,500 for companies. The government wants the new regime in place by December 1.

However, Treasurer Joe Hockey has announced a moratorium to encourage people who have made unlawful purchases to turn themselves in.

"Those foreign investors have until November 30 to come forward and self identify," he said on Saturday. "They will be forced to sell their properties, but they will not be subject to criminal prosecution."

People who don't come forward would face the full force of the law.

Mr Judah said he was concerned home buyers would be forced to absorb the costs incurred by overseas-based investors and developers.

"This new tax will add $6000 to house and land packages in the growth areas and approximately $19,000 to housing costs of an average home in the existing suburbs," he said.

"This cost will be passed on home buyers because of its scale and lack of implementation time for business to prepare.

"It will also act as a disincentive to foreign investment in Victoria, which is crucial to prosperity and job creation.

"The easiest way to improve housing affordability in Victoria is to stimulate the construction of new homes. This tax will discourage new home construction activity by making it more expensive to build.

"This will have to be passed on and many of the houses in the urban growth areas are built by companies that are foreign owned or partially foreign owned.

"We'll be seeking an urgent meeting with the treasurer to discuss changes to these taxes so we don't king hit the property industry at a time that we are trying to increase supply."

Chinese buyers are the biggest international players in the Australian property market, ahead of Americans and Singaporeans, according to  Foreign Investment Review Board data.

New Zealand citizens are exempt from the tariffs due to treaty obligations.

Mr Pallas said the new taxes were intended to lift a burden on Victorians.

Mr Pallas said the Real Estate Institute of Victoria was supportive of the charges, which it advised would not impact the market and were "reasonable" and "appropriate."

"This charge, which is a charge upon non-residents, non-citizens, are part-and-parcel in making sure that the cost of providing infrastructure is shared fairly and appropriately," he said.

Mr Pallas described the new taxes as "modest contributions".

Andrew Taylor, co-CEO of Juwai, an international agency for Chinese real estate buyers, said the taxes could be a deterrent.

The impact of the charges would also depend on the performance of the Australian dollar, he said.

"Australian property is still a good bargain," Mr Taylor said.

"However, with these new taxes and fees piling up, Australia and Victoria do run the risk of killing the golden goose," Mr Taylor said.

Esther Yong, director of Chinese-language real estate website AC Property, said the fees were reasonable but would initially slow foreign investment.

"These kinds of taxes are quite common all over the world," she said.

"For sure at the beginning, it will slow down the foreign buyers buying … [but] there are a lot of other reasons why they buy here; university, because their family and friends are staying here.

"And if that's the case, the money doesn't really turn them down that much in the long term."

Opposition Leader Matthew Guy said surcharges would be difficult to police.

"Putting an extra  3 per cent on foreign buyers, who in many cases are worth hundreds of millions of dollars, isn't going to really make much of a difference," Mr Guy said.

"But that aside, there are plenty of examples of foreign buyers having proxies in Australia to be able to buy their properties for them to get around these laws anyway."

"If the state government just wants to use this as another revenue raising measure they should just say so straight up."

Temporary residents can buy one dwelling to live in, on the condition they sell the property when it is no longer their residence.

Temporary and non-residents can buy an established property for redevelopment, if construction begins within two years.

As part of Mr Abbott's crackdown, the federal government will transfer residential real estate functions to the Australian Taxation Office, which will use its data-matching systems to identify possible breaches.

Third parties – such as lawyers or real estate agents – who knowingly assist a foreign investor to breach the rules will also now be subject to penalties, including fines of $42,500 for individuals and $212,500 for companies.

Mr Abbott says there will also be increased scrutiny around foreign investment in agriculture and increased transparency on the levels of foreign ownership in Australia through a comprehensive land register.

The Prime Minister insisted Australia was still "open for business" despite the crackdown.

"I really want to stress that this is a government which is pro-business and pro-investment," he said. "We are certainly pro-foreign investment, but it does have to be the right foreign investment."

He said he wants a real estate playing field that is "at least level" and if possible "slightly tilted towards the locals".

With Alexandra Spangaro, Adam Gartrell