Foreign investment surges (China rising)
The Foreign Investment Review Board (FIRB) released its much-awaited 2015-16 Annual Report and it showed that the greatest investing countries in Australia are now China ($47.3 billion) – for the third consecutive year – and the United States ($31 billion).
Total foreign investment increased substantially from $191.9 billion to to $247.9 billion.
Lower screening thresholds encouraged greater investment in the agricultural sector from the US and UK, while there were also a few big ticket items in the commercial space.
The FIRB celebrated its 40th year in 2016, and never before can Board members have experienced such a surge in investment.
Looking at real estate, which accounted for the great bulk of the applications, there were 40,755 approvals to invest in Australian assets.
The value of investment in Australia’s commercial and residential real estate stormed higher from $97.9 billion in the prior year to $122.1 billion, increasing by 135 per cent over the past three years.
$49.7 billion of this amount related to commercial real estate, the commercial investments being heavily focused in Sydney, and to a far lesser extent Melbourne.
No prizes for guessing that the growth in investment was overwhelmingly driven by China, with approved investment rising by a rip-snorting 157 per cent in only two years. There was also stronger investment from Hong Kong.
Residential investment explodes
Drilling in specifically to residential real estate proposals, investment has increased by an astonishing 322 per cent in only three years, from $17.2 billion to $72.4 billion.
In this context, the 39 cases of residential real estate divestments ordered were a proverbial drop in the ocean, totalling just $48.7 million in value, while 147 investigations actually resulted in retrospective approval being granted.
A grand total of four applications to invest were rejected – not a lot admittedly, but a big increase from zero in the prior year!
The rate of growth in proposed residential investment, while still massive, was not quite as high as in the prior year.
More than three-quarters of all foreign residential real estate investments were targeted at Victoria (44 per cent) and New South Wales (32 per cent).
Queensland (17 per cent) was the only other significant contributor.
According to the FIRB this represents “strong demand for residential property in Sydney and Melbourne”, which is hard to argue with.
Somewhat contradictorily, perhaps, the FIRB notes that foreign capital has not driven prices higher, apparently because prices have risen faster in Sydney and Melbourne (logical fallacy, anyone?), but also because there have been more domestic investors within Australia.
Arguably this overlooks that not all foreign investment is legal, approved, or recorded, and just as pertinently that dwelling prices are set at the margin.
If you live in south-east Queensland you won’t need any charts to tell you that there has been an outlandish increase in apartment construction, especially in inner city Brisbane, with Chinese investors hungrily mopping up the new stock.
The key question is how much of the new stock is being locked up and left empty (in my best estimate, quite a lot of it).
Finally, the bulk of investment in Australia’s residential real estate has been fed into new and off-the-plan developments, while there is also a fair amount of investment in the development of established stock.
As a proportion of investment more than 85 per cent was directed to vacant land, new dwellings, or established housing with a view to developing, thereby acting to increase the dwelling stock).
There’s no question that this construction cycle has been driven and sustained by unprecedented Chinese investment in new apartments, with a colossal increase in both the number and value of approvals.
That said, Australian lenders became fearful of lending offshore during 2016, and approved Chinese investment in the following financial year is unlikely to record anything like these growth rates.
The FIRB figures show that most approvals are for investments of $1 million or less, largely for residential property.
With foreign investment in residential property now exploding to $72.4 billion, mostly for new properties and new developments, you don’t need to be a mathematician to work out that if a material share of foreign owned units are being left empty, the impact of the new supply will be dramatically diminished.
In the financial year there were 34,264 approvals to foreign buyers granted for development, including approvals for new dwellings, vacant land, and other residential property for development.
At the end of 2016 there were still nearly 217,000 dwellings under construction, which is a huge volume of new supply.
However if foreign investors and/or developers are leaving units empty, then the impact of the record construction boom