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The truth about foreign property investment in Australia

Can you guess how many new apartments foreign investors are buying in Sydney and Melbourne?

Well, until recently, guessing was all anyone was doing because we had no hard and fast data on foreign investor activity in Australia.

But now we do – and the numbers are astounding…

Foreign investment frenzyforeign investor property

According to new research obtained by Credit Suisse, foreigners are buying property at an annualised rate of $8 billion per annum.

That equates to a staggering 25 per cent of new supply in New South Wales and 16% in Victoria in the past 12 months!

We know this because new taxes on foreign investors by state governments means we now finally have a statistical understanding of how many properties they are buying and who is buying them.

The bombshell figures suggest that, along with local investors, the level of foreign investor activity in the housing markets has been a significant driver of the price growth of recent years, and the overwhelming majority — a staggering 80 per cent in NSW — is coming from China.

KF1

And the main reason why Chinese buyers are still rampantly purchasing Australian property is because they think it’s cheap!

You see, the median price for a two-bedroom apartment in Shanghai is around $900,000, which is 25 per cent more than the median apartment price in Sydney.

Then there is the issue of rental yield…

In Shanghai, rental yields average around 1.5 per cent, half what a landlord of an equivalent property in Sydney would get.

KF2

What higher taxes? 
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And the impact of state government taxes on foreign investors seem to be making no difference at all to demand.

In fact, taxes for foreign purchases of property, first introduced in 2015, keep going up and benefitting state treasuries, without affecting sales.

A foreign buyer of Melbourne property now pays almost 14 per cent in property taxes, while in Sydney it is nine per cent.

The thing is, Australia is attractive on this score compared to much higher taxes levied in other popular destinations such as Vancouver, Singapore or Hong Kong.

In Hong Kong, the Foreign Buyer Tax and Stamp Duty combined is 37 per cent!

So, what does it all mean?

The data also shows that rather than reducing, foreign investment in Australia is ramping up. house foreign world globe property market investment buyer international

In fact, there has been a pick-up in both Sydney and Melbourne settlements around the end of last year, despite the numerous roadblocks on foreign buyers.

It ‘s clear that foreigners have been able to settle on their Aussie properties more recently despite the numerous impediments of capital controls and the lack of lending by Aussie banks.

And there is little evidence so far to suggest the flows have stopped…

I would even suggest that it’s not likely to slow down anytime soon, either.



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About

Kate Forbes is a National Director Property Strategy at Metropole. She has 15 years of investment experience in financial markets in two continents, is qualified in multiple disciplines and is also a chartered financial analyst (CFA).
Visit www.MelbourneBuyersAgent.com.au


'The truth about foreign property investment in Australia' have 2 comments

  1. Avatar for Property Update

    April 13, 2017 @ 3:06 pm John F Weeks

    Gday Kate and Michael.
    Thank you for a most interesting article about Foreign Ownership of Domestic Housing stock in Australia. It has been the ‘gut feel’ of many ordinary Australians in the last 3 to 5 years that many many Asian buyers in particular, are buying a ‘bargain’ compared with their own country circumstances – eg. Hong Kong; Jakarta; Tokyo; Manila; Bangkok; Shanghai etc.
    I believe they are able to receive ‘special’ low interest loans from their country of origin, which makes this scenario a very un- levelled playing field for Australians trying to get into the Housing Market and to Mums and Dads who want real estate as a retirement nest egg.
    Was I mistaken late the other night, on “Lateline”, when I heard Scott Morrison, our esteemed treasurer, tell the interviewer, “that Foreign ownership in Sydney accounts for about 4 % ownership.” ? Are my audible faculties in decline ?
    Anyway, as we used to say – ” The Horse has bolted”. It is too late to wind back the clock, but the R.E.I. of Australia should have been coerced to keep statistics 5 years ago [ in conjunction with A.B.S. and R.P. Data ? } when Foreign Ownership of in its infancy ?
    The other ‘Hobby Horse ” of mine is: Peoples from A.S.E.A.N. Nations can come in and buy land in Australia, easy !
    Try going to Thailand, Indonesia; China; Philippines …. [ except Malaysia ] to buy land. They would ‘belly laugh ‘you out of their slick real estate offices in Jakarta or Bangkok !
    I am led to believe, except under exceptional circumstances, most foreign owners can LEASE LAND only, at increments of 20 – 30 yrs. up to a maximum of 70 yrs. at which time it reverts back, unencumbered to the Original Owner ! So much for selling our [ Australian owned ] Gas, Coal, Iron ore, agricultural lands to Foreign Interests. Not withstanding the selling down of highly inflated Australian housing stock.
    Yours Sincerely, John Weeks. .

    Reply


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