It’s no big secret that Australia’s local economy relies heavily on overseas investment. From mining to manufacturing, without the injection of foreign funds into our financial coffers, we would not be enjoying the economic stability that abounds today.
Recently, there have been numerous reports that our Asian neighbours are starting to take a keen interest in our local property markets too and many think this could be another boon for Australia, with the residential construction sector playing a major role in the country’s future economic growth.
This concerns some commentators – others see it as a boon.
One supporter of this emerging trend is executive director and founder of MAB Corporation Michael Buxton, who sings the praises of overseas property investors in a recent report in the Sydney Morning Herald.
Although there are some critics when it comes to foreign property investors seeking to build their portfolios with Aussie housing, Buxton says we need more new homes in order to cater for our growing population. And at the end of the day, the construction industry is the fourth largest contributor to our GDP, accounting for 6.8% of gross domestic product in 2008-09 and employing 9.1% (close to 1 million people) of the total local workforce (Australian Bureau of Statistics, 2010).
ABS statistics also reveal that residential building contributed $42.9 billion to the local economy in 2008-09 and the flow on effect is widely felt, with the broader retail sector benefiting from the purchase of white goods and furniture by new home buyers.
However the injection of overseas capital into our construction industry has caused some bad press in recent times says Buxton, with reports of Asian buyers becoming significant players in the Melbourne apartment market, “as local developers struggle with onerous banking requirements.”
According to one story published in The Age, in the last 18 months mainland Chinese developers were responsible for nine landmark city purchases, while Malaysian, Singaporean and Indian investors snapped up at least another four sites.
This has irked some local players who have been restricted from making their own impact on the Melbourne apartment market due to tighter lending policies from the banks. Of course it is also adding fuel to the fire regarding an impending over-supply in the Victorian capital’s CBD.
But the fact is, money makes the world go ’round and Australia’s economy is no different. Before the Chinese, European investors were getting in on the Aussie real estate game and in the 1980’s, the Japanese wanted to make their mark (and spend their money) on our shores.
With our economy proving its stability in the wake of the GFC and our arms remaining open to foreign investment (because they have to be), overseas interest in Australia has always been keen. And that’s really not such a bad thing, considering it has meant more employment opportunities, a wealthier nation and a higher standard of living.
Essentially, overseas funding is providing capital for the much needed construction of new homes to accommodate our growing population, with the Foreign Investment Review Board only allowing foreign investors to buy new housing and requiring that non-residents sell their homes when they leave the country permanently.
This puts us in a win-win situation, with the injection of overseas funds and the retention of property ownership. Further, offshore buyers are restricted to purchasing no more than half of any new apartment towers, which means without local buyers these high rise complexes cannot be built.
The bottom line is, we need more housing and foreign investors are happy to oblige. Sales to overseas punters are not the norm and it’s highly unlikely that this trend will create any over-supply issues in the long term, with the vast majority being recent migrants who want to build new homes and new lives primarily in the growth areas of our major cities.
And as for adding to our affordability woes? Given that an accommodation shortage has largely been the major catalyst when it comes to rising property values over the past decade, the construction of new homes that Chinese investors are promoting will surely help rather than hinder.
With the Victorian population increasing by 116,250 during 2009, it is projected that we need an additional 600,000 dwellings in Melbourne suburbs over the next 20 years. With this in mind, surely foreign investment will help to re-balance the property market to a degree and lead to not only more affordable housing options in our growth corridors, but more affordable rental prices too.
Source: Sydney Morning Herald
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