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Foreign buyers of Australian property – how many are there? - featured image
By Michael Yardney

Foreign buyers of Australian property – how many are there?

How many foreign buyers are there in Australia?

And how important is their influence on proeprty prices?

That is the question discussed in a recent ANZ Research economic insight.

Here's what the ANZ bak had to say:

  • We are often asked about the rules around foreign investment and the impact that such investors have on the Australian housing market. While concrete data are hard to come by, we are able to combine existing data with informed assumptions to reveal some useful insights. Foreign Investment Feature
  • We build on recent work by Australia’s Reserve Bank (RBA) to estimate that foreign investors purchased between 35,000 and 60,000 dwellings in Australia in 2015-16. Foreign buyers seem to make up only a small share of total housing turnover for the year (7–13%), although the impact is more significant as a share of newly- constructed dwellings (15–25%) and in some states.
  • Using Foreign Investment Review Board (FIRB) data back to 1995-96, we estimate that foreigners own between 2.5% and 4% of Australia’s housing stock, plus anything purchased before that year. The size of this range reflects uncertainty about the extent to which foreign buyer approvals convert to actual purchases. 
  • The sizeable foreign-buyer share of newly-constructed housing implies that foreign demand has been an important contributor to Australia’s recent construction boom. But the relatively lower share of total market activity suggests that foreign buyers have not been the primary driver of the price growth in recent years. That is not to say foreign buying has had no impact on prices.
  • The estimated 2.5–4% foreign ownership of Australia’s housing stock is significant, especially considering that the current rate of growth is much stronger than in the past. It is also not large enough for us to be particularly concerned about a foreign exodus from the Australian housing market.
  • We note that Revenue New South Wales has several times this year released data on the number and value of foreign purchasers that have been subjected to stamp duty surcharges. It would be helpful if other state governments released their suite of data on foreign buyers, which would assist in more concrete analysis around the impact of foreigners on Australia’s housing market.

Figure 1. Foreign buyers in Australia

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In terms of the FIRB process, the key details are:

  • Foreigners1 require FIRB approval to purchase new dwellings or vacant residential land. The vast majority of applications for new dwellings are approved without conditions. Applications to purchase vacant land are subject to construction being completed within four years, to prevent land banking.
  • Contrary to relatively popular belief, foreigners can obtain approval to purchase existing dwellings. These applications are generally only approved subject to the purchaser increasing the stock of housing. For example, a knock down and rebuild where one existing dwelling is replaced with two or more townhouses or units.
  • Temporary residents (such as students or people on working visas) are also required to obtain FIRB approval to purchase an existing dwelling. These purchasers are not permitted to lease out the property and are required to sell the property once they leave Australia.

Because all foreign buyers require this approval to purchase Australian property, the FIRB have data on the value and number of approvals granted. 57131179_l

Note however, that this does not give us the number of approvals that were actioned.

The FIRB data tell us that in 2015-16, 40,100 property purchases by foreign buyers were approved, valued at AUD72.4bn.

Each FIRB approval can be for more than one property, so the value figure is particularly important.

Foreign purchases have risen sharply in recent years, led by Chinese purchasers; with the value of approvals granted in 2015-16 three and a half times greater than just five years ago.

Figure 2. Growth in foreign approvals dominated by China

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The FIRB data tells us about approvals, not actual purchases. foreign investor property

So, to calculate actual foreign buying, we need to make some assumptions about the rate at which approvals translate into purchases.

In doing so we need to be mindful that a fee for approvals was introduced in December 2015.

This means that for half of 2015-16 and in all subsequent years, the ‘conversion rate’ from approvals to purchases is likely to be much higher, because potential buyers are unlikely to incur the application fee unless they are highly committed.

The FIRB approved $72.4bn of sales to foreign purchasers in 2015-16.

To convert this into the number of transactions, we lean on recent estimates from the RBA, which noted that foreign buyers are purchasing around 10-15% of all new housing and around 25% of new apartments.

  1. To line up our analysis with the RBA, we assume that 30–50% of approvals result in a property purchase.
  2. If foreigners are purchasing around 25% of new apartments, this suggests around 80% of foreign purchases are apartments and the remaining 20% are houses. By applying this ratio to CoreLogic data on house and apartment/unit prices, we derive an average price of foreign purchases of $620,000 nationwide for 2015-16.

These conversion rates imply that foreign purchasers bought AUD22–35bn of Australian property in 2015-16.

At the median price described above, this translates to the purchase of 35,000–60,000 dwellings nationwide.

Figure 3. Methodology of analysis

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That number can be broken down further to assess how many of these purchases were for new dwellings.

We estimate that foreign buyers purchased 30,000–50,000 new dwellings in 2015-16, representing 15–25% of Australia’s new builds that year.

In flow terms, therefore, the impact of foreign buyers on the new housing segment could be sizeable. house-foreign-world-globe-property-market-investment-buyer-international

On our estimates, most of this foreign activity in new housing in 2015-16 seems to have been in Victoria.

We estimate that foreigners purchased 13,000–20,000 new dwellings in Victoria, representing 25–35% of total new builds in the year.

The market share seems to be higher in Queensland (25–45% of new dwellings) and lower in New South Wales (15–20%).

However, the impact of foreign buyers is less significant when we compare the level of purchasing against Australia’s total housing turnover.

In 2015-16, 465,000 dwellings were sold, meaning that foreign purchases of 35,000–60,000 dwellings accounted for only 7–13% of the marketAustralia Sydney Property Skyline Property Chinese Buyers

Again, foreigners seem to be most active in Victoria (10–20% of sales) and Queensland (10– 15%), followed by New South Wales (5–10%).

The analysis can be extended back to the commencement of the FIRB data in 1995-96.

Over the past 21 years (again assuming that 30–50% of FIRB approvals translate into purchases, and that foreigners have been buying 80% units and 20% houses), we find that foreign buyers have purchased an estimated 250,000–450,000 dwellings in Australia.

As of the 2016 Census, Australia’s total stock of housing was 9.8 million dwellings.

This means that foreigners could own approximately 2.5–4% of Australia’s housing stock.

This estimate is imperfect

It does not include properties bought before 1995-96, nor the subsequent sale of any properties previously held by foreign owners.

Further, it is sensitive to the assumed 30-50% conversion rate from approvals to purchases, and the impact that the mix of houses and apartments would have on the average purchase price.

Assuming our estimate of 30-50% of purchases to approvals is near the mark, this yields a useful frame of reference when assessing the impact of foreign buyers of the Australian market.

05.07.17 BlogAt 15–25% of new builds in 2015-16, foreign demand is clearly one of the drivers of the strength in our dwelling investment profile.

If this demand were to dry up suddenly, Australia’s construction pipeline would likely be notably weaker than currently expected.

The impact of foreign demand on prices is less clear.

The purchase of 7–13% of total sales each year is not as significant as the share of new construction.

So the impact on overall prices is likely to be less than the impact on construction.

Another way of looking at this is in terms of the stock of housing, rather than the flow.

As described above, we estimate that foreign owners hold 2.5–4% of Australia’s housing stock.

Around 5% of Australia’s housing stock is bought and sold each year.

This means that only a large shock, causing a high share of foreign owners to sell their Australian property, would be significant enough to drive sale prices lower.

About Michael Yardney Michael is the founder 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.
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