It is the Government’s policy that foreign investment in Residential Real Estate should increase Australia’s housing stock. That is, the policy seeks to channel foreign investment in the housing sector into activity that directly increases the supply of new housing (such as new developments of house and land, home units and townhouses) and brings benefits to the local building industry and its suppliers.
With the constant talk around the impact of foreign investment in the Australian residential property market, I thought it best to lay out the facts with a blog post. Here they are:
- In 2013/14, 24,102 investment proposals received by the Foreign Investment Review Board (FIRB) were approved, compared with 12,731 in 2012/13. The real estate sector had a significant increase in approvals with 23,428 approvals in 2013/14, compared with 12,025 approvals in 2012/13.
- In real estate, proposed investment was $74.6 billion in 2013/14, compared with $51.9 billion in 2012/13. Proposed investment in commercial real estate increased, from $34.8 billion in 2012 ’13 to $39.9 billion in 2013/14. Proposed investment in residential real estate more than doubled, increasing from $17.2 billion in 2012 ’13 to $34.7 billion in 2013/14.
- For the first time China ($27.7 billion) was the largest source country for proposed investment in 2013/14, overtaking the United States ($17.5 billion). Other major source countries of proposed investment in 2013 ’14 were Canada ($15.4 billion), Malaysia ($7.2 billion) and Singapore ($7.1 billion).
Of the $74.6 billion invested in Australian real estate, $22.7 billion worth of approvals were in New South Wales, $21.4 billion in Victoria and $4.76 billion in Queensland. In New South Wales, 4,676 dwellings were purchased by foreign investors in an environment where a total of 23,000 dwelling were approved in the state. On average, one of every five new properties sold in New South Wales are sold to foreign investors.
What’s driven the increase in investment?
- The Australian dollar has fallen in value by about 24 per cent in the past 12-18 months so Australian property becomes more affordable to foreign investors many of whom work for multinationals and are paid in US dollars
- Favourable property ownership laws. Chinese property is purchased via leasehold meaning ownership remains with the state
- Softening foreign property markets
- Australian property is viewed as affordable by many foreign investors
Excessive foreign investment can result in a two tiered market, as has occurred in some parts of Sydney and the CBD of Melbourne, where new property attracts a significant premium to second hand property. A significant component of the Blue Wealth research process is dedicated to minimising the risk of a price/value mismatch.