Property Market Information: Foreign buyers in the Australian market

By the resi financial blog team, 02 December 2014

Property Market Information: Foreign buyers in the Australian market

While the prospect of losing out to a cashed up overseas buyer at auction is no fun for local investors, a recent inquiry into foreign investment in domestic real estate revealed that the overall effect is a positive one for the housing market and the Australian economy.

The inquiry was held by the Standing Committee on Economics and received submissions from many private persons, as well as industry and government bodies. The resulting Report on Foreign Investment in Residential Real Estate, released on November 27, gives some detailed insight into the effect of overseas buyers on the local market.

How many overseas buyers are there?

According to the submission by Meriton Group in which the 2012-13 Foreign Investment Review Board (FIRB) statistics were quoted, overseas purchases of dwellings only made up 2.5 per cent of market, by number of sales.

The Committee also heard from the Meriton Group that almost half these purchases were made by temporary migrants for a primary place of residence while in the country. The upshot of this is that a little over 1 per cent of house sales to overseas investors were for investment purposes.

Evidence received by the inquiry suggests that foreign buyers are concentrated in certain areas, quite likely different to those that first home buyers find themselves in.

Markets that attract overseas investment tend to be the higher-than-average priced homes, typically found in new developments in Australia's inner city areas, while first time buyers tend to look at lower-priced, established homes in the middle and outer suburbs.

Does increasing stock offset higher prices now?

Scott Haslem of UBS Australia made a statement on 29 August, which was included in the Committee's report. In that speech he noted that foreign investment in new developments was serving to increase housing stock. However the lead time for this construction work meant that supply had not yet met demand, possibly resulting a period of higher prices which should cool down at a later point.

In a November 27 release, the Housing Industry Association revealed a very similar point of view, with Chief Executive for Industry Policy and Media, Graham Wolfe making the following statement:

"Foreign investment through pre-sales in multi-unit developments can be crucial to ensure that many of these projects come to market, which obviously benefits potential domestic buyers as well as renters, through more choice and competition."

Increased choice in residential housing stock may be on the horizon for domestic buyers means that the effect of overseas buyers on the market now should be taken with a pinch of salt.

The major finding for the report was that the monitoring agency FIRB needed an overhaul in its methods in order to better serve the country. Improved data collection, reporting and enforcement would go a long way to increasing the effectiveness of market forces.

For those looking to take out a home loan to take advantage of residential developments in the New Year, a resi loan specialist is just a quick phone call away.

Categories: Home Loans, Property Investment