Foreign property investment plummets due to tough regulations

Foreign investment in Australian residential property has fallen by around two thirds 

Now that has to affect the new apartment market in our big capital cities!  

The number of approvals for residential purchases fell by 67 per cent last financial year, according to the latest Foreign Investment Review Board (FIRB) Annual Report 2016-17.

However it may not be as bad as it sounds

The ANZ-Property Council Survey, for instance, shows a sustained fall in the presence of foreign buyers since the peak about two years ago.

But the scale of this decline is much less than that implied by the headline FIRB data. 

ANZ thinks that foreign buyers still have a sizeable presence in the Australian property sector.

Nationwide, just 11,000 approvals were granted, down from 40,000 the previous year.

But this data (which shows approvals rather than purchases) does not tell us how many approvals are converted into purchases of property.

This means the headline FIRB data therefore do not tell us much about the actual activity of foreign buyers.

Our December 2017 analysis details the impact of foreign buyers on Australia’s housing market.

Source: FIRB, ANZ Research

Where are foreigners still buying?

Victoria is still the most attractive market for foreign buyers on the basis of the FIRB data, recording 40% of all approvals, followed by New South Wales (30%) and Queensland (20%).

Who's buying?

Chinese investors are still the most active off-shore players across the real estate market, outlaying $1 in every $4 spent by foreign interests in residential and commercial property.

This is followed by Canada in a distant second place, then the United States, Singapore and Malaysia round out the top five sources of overseas buyers.

ABC reports that:

China's property investments while down around 50 per cent over the year, still topped $15 billion in 2016-17, followed by Canada with $7.2 billion and the US with $6.8 billion.

"These half years [second half of 2016 and first half of 2017] were like night and day in terms of Chinese investment," said Carrie Law, director of Chinese real estate website Juwai. 

"In the second half of 2016, Chinese investors were investing in Australian real estate at an almost irrational pace … it was like money falling from heaven for vendors and developers," she said.

"In early 2017, capital controls, financing restrictions, and foreign buyer taxes reduced Chinese investment to more reasonable levels."

Ms Law said Chinese investment in property now appeared to be running at more sustainable levels.

"Chinese buying enquiries for Australian property in March were 5.7 per cent higher than the month before and in April they were 22.3 per cent higher."

ANZ-PROPERTY COUNCIL SURVEY TEMPERS THE SCALE OF THE DECLINE

In order to assess movements in foreign buyer activity, a recent ANZ Bank report refers to the quarterly ANZPCA survey showing that the share of property sales to foreign buyers has steadily declined from its peak around two years ago.

The June 2018 survey suggests that, nationwide, 16% of property sales were to foreign buyers, down from 24% in September 2016.

New South Wales (16% down from 25%) and Victoria (21% down from 31%) report similar declines over the same period.

Source: ANZ-Property Council

The drop in foreign buyers is not surprising.

The past couple of years have seen significant policy changes, including:

• Tighter Chinese capital controls, such as limiting the outflow of foreign currency per person per year. 
• The introduction and subsequent raising of stamp duty surcharges on foreign purchasers across New South Wales, Victoria, Queensland and Western Australia.
• Vacancy tax on foreign-owned properties that are unavailable for rental for at least six months a year.
• A 50% cap on foreign ownership in new developments.

ANZ suggests that these structural changes are likely to prevent foreign buyer activity rebounding to its previous peak.

But foreign buyers continue to have an important presence in Australia, attracted by our solid economy and strong population growth.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.