FIRB report shows increased foreign investment in FY 2019-20

Posted by Luke Graham

The Foreign Investment Review Board recently released their annual report. It shows that $17.1 billion of foreign investment over 7,056 transactions was approved in the 2019-20 financial year—the end of which included the onset of the coronavirus pandemic. These figures reflect a $2.3 billion increase on the previous financial year, but a decrease in the number of transactions. This means the average transaction size approved by FIRB increased from $1.97 million in FY 2018-19 to $2.42 million in FY 2019-20.

A decrease in the number of approvals between financial years conflicts with commentary about the attractiveness of Australia as an economic and lifestyle haven in the midst of the pandemic. However, it is important to remember that countries such as Australia and New Zealand only proved this later in the pandemic when the world started adjusting to the proverbial ‘new normal’. Anecdotes from agents specialising in foreign investment indicate that premium real estate (in the tens of millions) is becoming increasingly popular for foreign investors, as is regular stock in ‘growth corridors’. This suggests that 2020-21 figures will show increased foreign investment volumes, but they’ll unlikely equal the level last seen in FY 2016-17 due to continuing foreign investor duties which push most middle-class foreign investors out of the picture.

There are a number of benefits to a tempered flow of foreign investment. First of all, foreign investors are usually targeted by low quality, overdeveloped and overpriced projects. You can see the side effect of this by driving through foreign investment neighbourhoods in Melbourne and Sydney. By tempering the flow of foreign investment in Australian housing, we are also mitigating a lot of the behind-the-curtain spruiking in the industry which results in inferior housing stock for Australian renters. Second, mitigating the extreme peaks and troughs of foreign investment in Australian housing could allow the asset to be more stable. This benefits investors and homeowners alike.

Posted by Luke Graham, on 6th Jul 2021