Foreign investment under review

Almost 16,000 properties worth a total of $24.9bn were cleared for sale to foreign buyers in the year to March by the Foreign Investment Review Board

A recent surge of foreign investment into Australian real estate, including some $5.5bn into established homes, is driving a push to regulate offshore purchases.

According to data extracted from Treasury figures and supplied by RP Data at a parliamentary inquiry, almost 16,000 properties worth a total of $24.9bn were cleared for sale to foreign buyers in the year to March by the Foreign Investment Review Board.

Overall, the first nine months of this financial year saw sales to foreigners almost double the total from the whole of last year, representing a record 13% of the total value of real estate sold.

Purchases by foreigners in Victoria made up a massive 23.2% – nearly a quarter of the total value of property sold in the state over this period. These figures potentially undermine claims that foreign investment is an insignificant share of demand, and the inquiry comes amid fears that locals are being priced out of the market for established homes, especially first home buyers.

Currently, Australia allows foreign investment in new housing to stimulate supply, but prohibits foreigners from buying established dwellings unless for the purposes of redevelopment (demolishing an existing dwelling and replace it with multiple dwellings).

The head of the inquiry, Liberal MP Kelly O’Dwyer, has flagged new application fees, tighter enforcement of the prohibition on acquiring fixed homes and possibly extra stamp duty for foreign investors, as affordability becomes a genuine political issue.

Reserve Bank assistant governor, Dr Christopher Kent, said the RBA still welcomes foreign investment into Australian real estate, claiming that it’s unlikely that this is pushing first home buyers out of the property market, as rising house prices have been driven by low interest rates and growing population.

The inquiry in late June saw Dr Kent claim that prices have grown all over Australia, including areas that do not typically attract foreign investment, suggesting that foreign residential purchases have probably not had a large direct effect on the price of housing that is typically purchased by first home buyers.

He conceded that it was possible that foreign demand was affecting prices in certain segments of the market, but it was hard to know what that impact was. Concern would be raised if a long, sharp spike in house prices were to continue, added Dr King.

It was also noted that foreign investment supported local construction, while foreign-based developers added competition and provided access to alternative sources of financing.

Following the hearing, Miss O’Dwyer said the RBA had acknowledged that in certain segments of the market there could be higher prices as a result of foreign buyers.

A report from Credit Suisse, The Chinese Property Boom Down Under, predicted Chinese investment would likely double in the next seven years, with $44bn likely to be invested.

At the same time, the report noted, “a generation of Australians are being priced out of the property market … Many face a lifetime of renting, others are considering a move to the cheaper city fringes — areas which are notorious for their considerable infrastructure deficit.”