Foreign real estate investment jumps 19%

by Miklos Bolza15 May 2017
Although foreign investment approvals in real estate continue their upward trend, the resultant effect on property prices in Australia’s two biggest capitals has remained modest, a new government paper has found.

The recently released Foreign Investment Review Board (FIRB) Annual Report found that residential real estate applications increased by 19% to $72.4bn in 2015-16 compared to $60.8bn in 2014-15.

Alongside this, the total number of applications approved for residential real estate jumped from 36,841 to 40,149 between the two financial years. Overall, residential property approvals made up 96.9% of all foreign investment approvals in 2015-16.

Approvals for development (including new dwellings, vacant land and redeveloped existing property) accounted for 85.4% of all residential property approvals during this financial year.

While 5,877 approvals were given to established dwellings (temporary homes for non-residents while in Australia or as houses for Australian staff of foreign-owned firms), this dropped by 36% from the previous year.

This shows that the FIRB regime is working, said Charles Pittar, CEO of international property website Juwai.com.

“Foreign investment is going right where Australia wants it and is one of the few bright spots of the economy.”

By location, 44% of all residential approvals were in Victoria while 32% were in New South Wales. For approvals in the remaining states and territories, 17% were in Queensland, 4% in Western Australia, 2% in South Australia and 1% in the Australian Capital Territory.

FIRB’s annual report also cited a 2016 paper issued to the Treasury which examined the effect of foreign investment on property prices. In Sydney and Melbourne, it was suggested that foreign buyers increased prices by between $80 and $122 – a modest rise compared to the average jump of $12,800 in these two capital cities.

By country, China continues to dominate in real estate with $31.9bn worth of investment in residential and commercial properties approved. This is followed by the United States ($8.2bn), Singapore ($4.6bn), United Arab Emirates ($3.6bn) and Canada ($3.2bn).

Despite the large proportion of Chinese investment, this represents a slow down between this financial year and the last, said Pittar.

“Over the past year we have seen growth in Chinese investment level off, from a white hot 90% growth in Chinese buyer inquiries via Juwai.com in 2015 to 28% in 2016. Growth will probably be lower still this year, unless it receives some sort of push from loosening regulations in China.”

The low number of divestments which were forced due to non-compliance also shows that foreign investors are very well behaved, he said.

“The rate of noncompliance is so tiny as to be almost invisible. While estimates show that one in 20 wealthy Australians cheat on their taxes, fewer than one in 1,000 foreign investors cheat in the property market.”

Pittar also said that concerns about Chinese investors were overblown.

“Despite the rapid growth in Chinese investment, the US owns about four times more of Australia than China does, so worries that we’re selling off the country to the Chinese are unwarranted.”

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