There’s no shortage of hype & coverage surrounding foreign investment in Australia’s property market, but is it worth all the fuss?
There’s no denying the amount of foreign investment that has taken place in Australia’s property market in recent years.
Figures released in the past few weeks by financial services company Credit Suisse estimated that residential investment from Chinese-based investors and new immigrants from China will more than double over the next six years to $60 billion.
The report highlights the effect Chinese buyers in particular are having on the housing markets in both Sydney & Melbourne, having claimed some 23 per cent and 20 per cent respectively in new housing stock over the 2013-14 period.
Foreign investment is often blamed for locking first home buyers (FHB) out of the market, but experts say the public has a distorted view of how much this investment truly influences house prices – and we would tend to agree.
“It sounds like a big amount, but realistically it’s still a pretty small percentage of the entire market,” senior analyst at CoreLogic RP Data Cameron Kusher states.
He acknowledges its effect on prices, but is quick to point out that it is “only in a narrow area: brand new houses in estates and new apartments in the city.”
He alludes to the fact that perhaps the mindset of FHB’s needs to change or adjust in line with current market conditions, namely, affordability.
“First home buyers want to live close to the city for obvious reasons and may be not so keen to move to the outskirts of the city… but they need to be prepared to make more sacrifices, such as buying an older property that needs a lot of work.”
“So, maybe for a first-home buyer, they need to change the sort of properties they are after. They should look at the existing market, rather than the brand new market.”
Mr. Kusher goes on to say that it is more likely those experienced buyers, or second time investors with equity purchasing their second or third home, that are more influential on property prices than foreign investors.
Perhaps one of the biggest points to acknowledge is that foreign investment is largely concentrated in Melbourne and Sydney, with a very negligible effect in the other capital cities.
Economist James Laurenceson, deputy director of the UTS Australia-China Relations Institute, argues the same.
He notes a 2014 parliamentary inquiry into foreign investment concluded that overseas buyers were actually helping to increase housing supply, which in turn placed downward pressures on house prices.
Hence, blocking or stopping foreign investment may in fact have the complete opposite (desired) effect on the property market.
“Foreign investment is concentrated in new property and this has expanded the supply. If you take away that investment, prices are going to be pushed up.”
The governments new foreign investment rules, such as the $5000 application fee for property under $1 million, will do little to dampen the demand or appetite from these wealthy individuals.
“While new foreign investment proposals may make Australian real estate less attractive for Chinese buyers, we believe the potential erosion of demand will be marginal.’
A parliamentary inquiry into foreign investment last year concluded that there was no solid evidence to support the idea that foreign investors were driving up prices.
The bottom line
In fact, the report states that overseas buyers actually helped to make housing more affordable because their investment boosted the economy, provided jobs and – crucially – encouraged new homes to be built, increasing housing supply.
And with that being said, it’s always important to consider where your news is coming from, what agendas lay beneath the headlines, and how trust worthy those ‘facts’ are.
Although there’s no denying the amount of foreign investment coming into the country, there’s also no evidence or logical indications to suggest that these investments are pricing out FHB’s.