Earlier this week the ABC’s 7.30 Report produced a story on foreign investment in Australia’s real estate market and the effect, if any, this issue is having on property prices. I have been hearing this story doing the rounds for some time now and I wanted to know what the actual facts were and whether it is affecting the market:
- In Australia there are around 600,000 property transactions annually and the estimation of foreign ownership is about 4.5%
- It is illegal for foreign investors to buy existing properties within Australia but no limits exist on new dwellings. They can purchase vacant land to build on or put in an application to demolish and rebuild, but they must build two homes on the block to increase housing stock
- The Foreign Investment Review Board oversees property purchases by foreign investors but does not have the resources to scrutinise all 600,000 transactions
- Foreign investment in Australia brought $51.9 billion into the economy compared to $45.1 billion for mineral exploration and development. But this figure has actually dropped from $59.1 billion (2011-2012)
- Chinese buyers are the biggest foreign real estate investors. In 2012-13 they purchased just under $6 billion in real estate including commercial but Canada and the US came close with $5 billion and $4.4 billion respectively
So are cashed up foreign buyers creating all the heat in the property market?
While they make a small contribution to the heat they are only part of the bigger picture, their investment has actually dropped in the last year. Interest rates are at the lowest they have been historically, which encourages investment; at the moment supply is low and being met by high demand. On the flip side, the best way to solve the supply problem would be to build more homes, something that foreign investment is driving in Australia.
by Tanya Demello on 30 September 2014
Filed under People