As house prices skyrocket in Sydney and Melbourne, this week’s bullish statistics on foreign investment in the housing market are sure to inflame an already hot debate about foreigners buying Australian homes as investments.
It is a debate with sharply divided sides, as critics point to the effect of foreign demand in driving up prices, while defenders highlight the role of foreign investors in funding new construction and increasing the housing supply for everyone.
According to a survey of property professionals by National Australia Bank released this week, foreigners bought more than 28 per cent of all new apartments in Melbourne in the June quarter, more than 16 per cent of all apartment sales in the new property market, and more than 11 per cent of all houses.
“Despite stricter restrictions on foreign investment in the established residential property market, the survey suggests foreign buyers play a fairly significant role in this segment of the Australian housing market,” NAB said.
This is an interesting comment because it highlights that while foreign investors are a major force in new housing, they are also competing with Australians for existing homes.
Chinese investors[/caption]Regardless of the merits, one thing can be stated with confidence – we can no longer dismiss the influence of foreign buying on property prices as marginal.
Until recently, the focus of public attention has been on Chinese buying at the super-prestige end of the market, including properties worth more than $20 million.
This prompted Treasurer Joe Hockey to act earlier this year, forcing the sale of a harbour front mansion illegally bought by a foreign investor for almost $40 million in 2014.
The mansion ‘Villa del Mare’ in exclusive Wolseley Rd, Point Piper, was purchased illegally by a company listed on the Hong Kong Stock Exchange through shelf companies based in Australia, Hong Kong and the British Virgin Islands and without notifying the Foreign Investment Review Board.
However, despite a handful of high profile sales like these, the evidence is that overseas buyers are not concentrated there but are investing across all segments of the market.
The NAB statistics show that around 70 per cent of all sales to foreign buyers were below the $1 million mark in the first quarter of this year.
In Queensland, around 85 per cent of sales were below $1 million, while in NSW, almost 60 per cent were sub-$1 million.
Most foreign buyers are shopping at the lower end of the market, with 41 per cent buying properties between $500,000 and $1 million, while 30 per cent bought properties worth less than $500,000.
Chinese buying of Australian property in particular has already been pointed at as the cause of significant competition driving price increases in housing in Sydney and Melbourne.
Foreign Investment Review Board figures put China as the largest foreign real estate investor in Australia, followed by the US.
The statistics follow a spate of stories claiming that foreign investment is distorting the Australian property market.
For instance, The Australian recently ran a story titled Property boom: China buyers raise ghost town fears claiming that Chinese investors were buying properties and then leaving them vacant.
This is a practice that is common in China where many investment properties are bought unfinished and held only for capital gain but is largely unheard of in Australia.
“About 4,000 new homes bought by China-based investors over the past two years lie mostly empty, with owners only occasionally visiting,” The Australian reported.
It cited MacroPlan Dimasi chief economist Jason Anderson who said he expects a further 10,000 new homes bought by Chinese buyers over the next five years to be left vacant.
Residents of one Sydney street were even cited claiming that vacant homes are left untended and bring down property values.
In response to public angst over the issue, new measures have been introduced to strengthen offshore buyer requirements in the future.
From December 1, 2015, non-resident buyers will pay a fee of $5,000 for property under $1 million, with increments of $10,000 for every $1m thereafter. From July, the Victorian Government will impose 3 per cent stamp duty on foreign buyers. Those who leave their property vacant will also have to pay a form of holding land tax.
This has been estimated to add up to $50,000 to a typical property sought by foreign buyers, who often intend to educate their children in Australia, or the US or UK, and migrate.
Whether that will satisfy locals aspiring to buy homes remains to be seen but it seems unlikely given that Chinese investors looking for a secure overseas investment are unlikely to be deterred by these costs.
One thing is certain – as China continues to grow economically the stakes in this debate will only grow as developers seek to leave the door open to a lucrative market and homebuyers seek to limit competition.
