Foreign investment takes off

Foreign-investors-have-a-taste-for-Australian-real-estate-_157_6011036_0_14102952_300It is a widely known fact – Sydney is an investment hotspot. With the median price of a home in the New South Wales capital soaring above $1 million as of April 28 according to SQM Research, there can be little doubt that residential real estate is in an upwards spiral. But what role do overseas buyers play in this scenario?

A new report from the Foreign Investment Review Board (FIRB) has highlighted the prevalence of overseas investment in the Australian real estate sector – in fact, it looks to be one of the key ingredients in keeping the market in such a solid position.

Surging offshore interest

Figures from the FIRB Annual Report for 2013-2014 indicate that the quantity and value of offshore investor purchases has skyrocketed in recent years. While other areas of investment dropped, the property industry recorded a substantial increase in approvals with 23,428 proposals for investment in 2013‑14 alone – a significant jump from the 12,025 approvals posted in 2012‑13.

While this covers both commercial and residential property, it is clear that overseas interest is surging the residential market. There was a grand total of $34.7 billion in proposed investment over the year – almost doubling the value seen in the previous year.

Moreover, the most recent ANZ/Property Council Survey for the June quarter found that the residential market has remained in an exceptional position, in part supported by consistent foreign demand for homes. This has been most acute in areas like Sydney. However, there has been a fair amount of back and forth about whether this is a positive or a negative factor – and whether these individuals are really responsible for the city’s exceptionally high house prices.

Foreign investment supports housing supply

Some observers have been quick to play the blame game, pointing the finger at foreign buyers for driving everyday Australians out of the market. According to a recent QBE Survey, 69 per cent of prospective purchasers surveyed were concerned that foreign investors would make property unaffordable.

On the other hand, the Property Council of Australia Chief Executive Ken Morrison said the idea that offshore buyers drive up house prices is misguided – in fact, he noted that Property Council research shows international investment improves affordability for everyday buyers.

“Every newly constructed home that a foreign investor purchases enables up to four other homes to be built, so this boost is good news for affordability,” Mr Morrison said in an April 30 statement.

“This investment is not competing with Australians looking to purchase existing houses, it’s helping to support the construction of new housing for everyone.”

While it will probably stay around as a point of discussion, offshore interest in the national property market is showing little sign of cooling off – but just how much influence this will continue to have on the construction sector remains to be seen.

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