Foreign investor crackdown: Australia pulls back the welcome mat

Foreign investors have been largely shut out of Australia’s property market over the past few years as Australia’s physical border closure kept international arrivals at a bare minimum.

In 2021, foreign investment in Australian residential real estate fell to its lowest level in more than 15 years, according to the Foreign Investment Review Board’s annual report.

There were 4,384 residential real estate approvals in the 12 months to June 2021 totalling $10.4 billion, a drop of $6.7 billion worth of investment from the year prior.

Although this downfall was offset by commercial property which more than doubled to $38.8 billion in the 2021-2021 financial year.

So when Australia’s international border reopened in February for the first time in nearly two years, there was excitement about what that would mean for our property markets.

But Australia’s governments have yet to pull out the welcome mat.

In fact, they’ve done the opposite.

Under a new federal government effort, supposedly in an effort to ease Australia’s housing crisis, fees paid by foreign investors will double.

While the fees vary, on residential purchases foreign investors will now pay $13,200 for acquisitions of $1 million or less, rising to a maximum of $1,045,000 for acquisitions over $40 million.

Previously these application costs ranged from $6,600 to $522,500.

Treasurer Jim Chalmers unveiled a $455 million crackdown on foreign investors last month, saying the added funds would help to tackle housing affordability and help more Australians to home ownership.

But here’s the problem

The benefit of the high foreign investment fees will be minimal, and it comes at a cost.

You see, the government has pulled the welcome mat out from under foreign investors’ feet at a time when we have a severe shortage of houses and apartments and this has led to a rental crisis.

We have to remember that developers must pre-sell a large percentage of their properties in proposed apartment towners in order to get property development finance.

At the moment there are very few large apartment buildings coming out of the ground because they are not financially viable amid soaring construction costs and construction completion uncertainty.

Taking away a stream of buyers when the market is tight is only going to worsen the current rental crisis.

Without finance, these buildings won’t be constructed, and without an uptick in dwelling supply the number of rental properties will only tighten further, forcing rents to continue skyrocketing.

Investors aren’t welcome

The original fees were already considered high by the Property Council, and Property Council chief executive Ken Morrison said that the forthcoming hike made Australia seem hostile to outside investment.

“We should be welcoming foreign investment with open arms, not sending the opposite message by doubling these fees which are already much larger than our competitors and apply to far more transactions,” he said.

And he warned that such practices risked the inflow of funds that keep the country’s industry strong.

“Australia needs foreign investment to power our economy, including investment in our modern office buildings, industrial parks, shopping centres, tourism facilities, student accommodation and much-needed new housing,” he said.

Search volumes surge

The news comes as overseas interest in Australian property jumped 23% year-on-year in June, with a particular interest in our sunshine state: Queensland.

Perhaps most interestingly, rental properties saw the most dramatic surge - by an enormous 71% in June, according to a recent PropTrack report.

By comparison, searches on the ‘for sale’ section rose just 7% during the same month.

What this suggests is that more longer-term visitors are considering moving to Australia, most likely migrant workers and students.

So our governments should consider the unintended consequences of their actions which are only likely to hurt those who they are trying to protect – Aussie tenants who are going to have to pay more rent, meaning they’ll find it even harder to save a deposit to get on the property ladder.

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.