There has been a lot of press over the past year or so about foreign buyers snapping up large portions of the Australian residential property market.
In particular, concerns have been expressed that foreign buyers are willing and able to pay above market values in popular areas as many are cash buyers, or can contribute significant deposits, and are therefore not constrained by lenders’ valuation and loan-to-value restrictions.
It is argued that this has had the effect of inflating prices beyond the norm, which has resulted in many local buyers being priced out of the market – especially first time buyers.
Is this really the case? Are local buyers really being priced out of the property market by foreigners?
By the Numbers
It is hard to put a precise figure on the exact number of foreign buyers snapping up Australian residential property as there is currently no reliable source on foreign property transactions.
There has been frequent anecdotal comments by selling agents on the matter, particularly in popular suburbs in the eastern states, however there is no national data base that can unequivocally provide details on exactly how many overseas buyers are buying, and what type of properties they are seeking.
However, the National Australia Bank issued a report last year estimating that around 1 in 6 (17%) of new homes, and around 1 in 8 (12.5%) of established property sales were made to overseas residents.
The report also indicated that the figures in Victoria were 1 in 4 (25%) and 1 in 9 (11.5%) respectively. Clearly, if these figures are a true representation, then foreign buyer activity is high and becoming a material part of today’s property buying landscape.
According to the Housing Industry Association’s (HIA) submission to the Inquiry into Foreign Investment in Residential Real Estate there are two main reasons foreigners buy property in Australia:
- For personal use – this includes occupation by family members living or soon to be living in Australia (including students and those planning to take up permanent residence) and as a home away from home for regular business travellers and holiday makers.
- As an investment – the buyer’s motivations are exactly the same as those of the rest of us – good yields and long-term capital growth.
Additionally, other driving forces for foreign buyers can include an exchange rate benefit (i.e. their currency having greater Australian dollar purchasing power) and a relative cost advantage benefit (i.e. it’s cheaper to buy here than in their home country).
Together, these factors make it attractive to buy in Australia, especially given the strong growth in property prices seen over the past couple of years.
Like domestic buyers, foreign buyers are also seek out quality properties that are close to key amenities like transport, shops, schools and parks. So to this extent at least, they do compete with local owner-occupiers and investors.
As an aside, there is no evidence to suggest that foreign buyers are speculating on residential property. That is, they do not appear to be buying and selling quickly in order to make a quick buck.
Rather, they appear to take a longer-term view.
What Type of Properties are Being Purchased?
While there is demand for low density properties with a land component, the HIA believes foreign buyers are more active in the inner-city high-density apartment market.
This is largely driven by their familiarity with this type of accommodation (something they are used to in their own county), the developments’ location (being close to the CBD) and the sales and marketing activities directed at them.
This would indicate that foreign buying is largely active in a fairly narrow market and much less active in the surrounding suburbs, notwithstanding that they can and do buy in suburban areas (according to some selling agents).
What’s the Impact?
This question can be answered in two ways.
Firstly, they appear to be having a positive impact on major inner-city developments. Domestic demand is not always sufficient to get these developments off the ground, and foreign buyers fill the demand gap and help make them fundable and viable.
This not only creates more accommodation in inner-city areas but the economic knock-on effects (like direct and indirect employment, urban renewal and development, and increased consumer spending) help the local and state economies.
Secondly, foreign buyers do not seem to be impacting the first home buyer market because they are not buying the typical properties first time buyers are drawn to.
Instead, foreign buyers compete more with investors who are more active in the higher-end apartment market.
While it would appear foreign buyers have a narrow market focus, some people hold the view that they may be having a broader impact on the residential property scene.
For instance, the Australian Property Institute’s bi-annual Property Directions Survey indicated that 96% of the contributing analysts believed that foreign buyer activity was a significant to very significant cause of the increase in demand and prices in the main capital cities.
Focus on the Facts
At this point in time, there are varying views on the extent, impact and benefits of overseas buyer activity in Australia.
However, rightly or wrongly, there is a growing concern among the property buying community, that local buyers are getting pushed out of the market as a result of overseas purchasers pushing up property values and outbidding them.
We need to determine whether this is fact or fiction by getting some hard data, rather than relying on anecdotal evidence, opinion or hearsay.
As such, the government needs to develop a transparent and enforceable policy on foreign residential investment (which should also include the purchase of vacant land, especially in the farming regions) and develop an adequate and timely reporting framework that can inform everyone about exactly what’s going on and whether there is real problem or not.
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