Foreign Investors: What are the Numbers?

Posted by Luke Graham

The Economist published an article last week on the inability of economic professionals predicting economic crises with any significant degree of certainty. This is an interesting statement that prompts questions about divergences within other professions.

If economists are substandard for having different opinions from one another, then so are clergymen, doctors, physicists, lawyers, political scientists, sociologists and almost every other profession known to mankind, right?

Regardless, the best we can do is operate on the information available to us, especially by ensuring we have found the best information available. Obtaining pertinent information on Australia’s Foreign Investment Review Board (FIRB) has proven difficult for many leading economic professionals, with the publicly available data being criticised as somewhat limited and delayed.

The following information is derived from the FIRB’s 2012-13 financial year report (released in February 2014) as well as from the Australian Bureau of Statistics. In the 2012-13 financial year:

Almost 95 per cent of FIRB approvals were for the real estate sector

$17.16 billion was invested in residential real estate through FIRB approval

The total value of Australian residential property increased by $246.91 billion

Therefore foreign investors accessed 7 per cent of the growth in national value of dwelling stock

Approximately 129,300 new dwellings were created across the country

FIRB approved property represented 9 per cent of this figure

No FIRB approval requests were rejected

Both the USA and Switzerland invested more in Australia than China

Annual FIRB approvals almost tripled between the 2009-10 and 2012-13 financial years

What we can decipher from the above, as well as from some other anecdotal information, is that although almost all approvals are for the property sector and there has been significant growth since the GFC recovery, the proportion of foreign investment to the total growth in value of residential property is minimal.

What is of minor concern, however, is the proclivity of foreign investors ‘funneling’ their finances into acquiring Australian interests through family or friend ties that have an exemption from FIRB requirements. This includes citizens, permanent residents and even temporary residents. The magnitude of this will remain unlikely to be discovered completely and is fundamentally founded on racial profiling.

Consider that China is the third largest contributor to FIRB approvals by amount invested. How many articles have you seen addressing concerns with citizens of the USA and Switzerland? FIRB chairman Brian Wilson implies that racism plays a significant part in this, whereas others aren’t concerned as much about the current levels as they are by the rapid growth rate of Chinese investment and one-way policies that prohibit Australians the same liberties in China.

Posted by Luke Graham, on 9th Dec 2014