RBA allays foreign investment fears

by Calida Smylie20 Jun 2014
Reserve Bank of Australia research has debunked popular fears that foreign investors are driving up prices and snatching homes from the hands of first home buyers.

RBA economists point out that Foreign Investment Review Board approvals to foreigners over the past decade have remained steady at around 5 to 10% of the value of homes bought and sold every year, with the number of transactions around half that level.

FIRB data indicates the value of approved foreign investment in residential property in Australia has increased, rising from around $6 billion annually in the 1990s to more than $17 billion in 2012-13 – driven mainly by approvals for new dwelling purchases and construction.

However, because national dwelling prices and turnover having increased significantly over the past 20 years, the value of foreign residential approvals as a share of total dwelling turnover in Australia has not actually increased over time, RBA says.

“Overall, the available data suggest that while foreign residential purchases change a bit from year to year, they have been relatively steady and fairly low as a share of turnover in the housing market in Australia and hence are unlikely to have been the main driving factor behind the recent increase in prices, notwithstanding the pick-up in approvals more recently,” the central bank economists say.

Some commentators worry over potential for foreign residential demand to push up the price of housing for first home buyers.

Fears about the impact of foreigners on the housing market have even triggered a parliamentary inquiry into whether measures should be taken to curb offshore investors.

However, RBA says as first home buyers generally purchase established dwellings that are cheaper than the national average rather than new, the degree of competition with foreign buyers is likely to be fairly small.

Data shows foreign residential investment is concentrated in higher-priced parts of the housing market, and in particular to new dwellings concentrated in New South Wales and Victoria.

In 2012-13, investment in new dwellings in these two states accounted for almost four-fifths of the total value of foreign residential investment approvals, much larger than the three-fifths share that these states have in the overall stock of housing in Australia, RBA says.

MORE:

Government 'failed' first home buyers: Lobby group

Foster stronger ties with overseas investors, says business expert

E-supporting docs slated to be mandatory for brokers

COMMENTS

  • by Incognito 20/06/2014 12:45:47 PM

    Debunked popular fears?

    From the article:
    1. Up to 10% of property by value being sold to foreign investors?!
    2. More than $17Bn of property in 2012-13?!!
    3. Foreign investment 'concentrated (four fifths) in new dwellings in NSW and Vic' (where FHOG applies on new property only)!???

    Fears not debunked, fears confirmed.

    AND THIS IS JUST ON INVESTMENT DECLARED TO FIRB. WHAT ABOUT THE REST

  • by We are Muppets 20/06/2014 3:20:23 PM

    The RBA and FIRB assume that all overseas buyers will follow proper procedure with acquisitions. The flood of cash buyers in Melbourne's prestigious suburbs certainly don't get what they want by doing things by the book. It's not in their culture. They have multiple books depending on who wants a look. Our economy is awash with undisclosed cash and it seems they have govt's blessings to bring it all to Aust and spend-up big. My hard working and tax paying clients that need a home loan just can't compete with the cash deals going down. When will the govt finally start effective recording of property ownership and verifying the owners legitimacy as a matter of course. That's right - we are now into removing red tape. Even if the buyers wanted to do it all by the book, there are many loopholes to wiggle through. Just google FIRB limits. Structure accordingly with some eager local help, and go on a buying frenzy.
    There are very good reasons why China and most other nations won't let foreigners buy freehold. If you are lucky and pay the right people the right "incentives", you might get a 100 year lease, that's all.