Overseas investment grew in Australian real estate in 2016, but with new taxes and stricter rules in place, how has the market changed in the last year?
With Australia property prices soaring in recent years, industry commentators were quick to speculate about the impact foreign buyers were having upon rising values. Indeed, with stock levels low and demand high, prices in active hotspots such as Sydney and Melbourne have rocketed. As a result, the country’s Foreign Investment Review Board announced a fresh crackdown on foreign purchases in 2015.
Australia’s investment rules are already geared towards boosting the country’s housing supply, with non-resident buyers only permitted to invest in new build property, apart from in some certain circumstances, and all purchases subjected to FIRB approval. Since 2015, stricter fines and penalties have been introduced for those found to be purchasing properties without approval. At the same time, three states (New South Wales, Victoria and Queensland) have implemented additional taxes for foreign buyers, which range from 1 per cent to 5 per cent, in an attempt to curb excessive levels of investment from abroad.
The measures have had a notable impact upon foreign investment in the last year: while applications surged 60 per cent in 2014/2015, investment grew by just 9 per cent in 2015/2016, according to the latest annual report. Nonetheless, it continues to grow, with a total of 41,445 applications submitted to the FIRB, compared to the previous year’s 37,953. The volume of investment soared 29 per cent from $191.9 billion to $247.9 billion. Real estate is a big driver of that climb, with property accounting for 98 per cent of applications and 29 per cent of total spend.
One thing has not changed, though: for the third year in a row, China was the largest source of approved investment ($47.3 billion), driven by real estate.
Where are investors buying property? We have used the FIRB statistics to map the investment patterns of overseas buyers, making it easy to see where the most popular parts of Australia are, not just in general, but for existing homes and new-build properties, as well as compare both 2014/2015 and 2015/2016 activity.
Three-quarters of all residential real estate approvals were for purchases in Victoria and New South Wales. This is consistent with recent years and reflects strong demand for residential property in Sydney and Melbourne. Victoria is notably popular for existing home purchases, which are permitted for those staying in the country, highlighting the appeal of Melbourne for expats.
Individual state taxes, meanwhile, show no sign of dampening overseas demand, with applications for investment in Queensland rising 33 per cent year-on-year, New South Wales 5 per cent and Victoria 4 per cent. Applications dropped year-on-year by 20 per cent in Western Australia, 15 per cent in Australian Capital Territory and 13 per cent in South Australia. Indeed, according to Juwai.com, the three most popular hotspots for Chinese investors are Melbourne (Victoria), Sydney (New South Wales) and Brisbane (Queensland).
Charles Pittar, CEO of Juwai.com, says that growth in Chinese investment has levelled off, from a “white hot” 90 per cent growth in enquiries via the portal in 2015 to 28 per cent in 2016. However, he highlights the new figures as proof that Australia’s regime is working and that foreign investment is “one of the few bright spots of the economy”.
Indeed, the FIRB concludes that Australia’s foreign investment policy encourages investment in the residential real estate sector that helps build supply, with 34,264 approvals given for development (including approvals for new dwellings, vacant land and other residential property for development) – up 24 per cent year-on-year. Over the last four years, the proportion of all residential real estate approvals for development has steadily increased and now represents 85.4 per cent of all residential approvals.
“Chinese investment translates directly into jobs, tax revenue, economic growth and new housing construction. There’s nothing about it that any reasonable person can object to. Frankly, China has been a godsend for Australia these past 10 years,” says Platter.
Despite the rapid growth in Chinese investment, the US owns about four times more of Australia than China does, he adds.
As for the relationship between foreign investment and house prices, the Australian Treasury’s own research, using data from 2010 to 2015, found that the effect was small, with foreign investment in residential real estate concentrated in Melbourne and Sydney. While Melbourne received more foreign investment approvals than Sydney, though, price growth in Sydney was much stronger. The report concludes that foreign investment increased prices by between $80 and $122 in Melbourne and Sydney in each quarter, a tiny portion of the average quarterly increase of $12,800 in the two cities during those five years.
What do the next 12 months hold in store?
“Growth will probably be lower still this year,” forecasts Platter, “unless it receives some sort of push from loosening regulations in China.
Source: Based on The Australian Government the TreasuryGoogle+