The Impact of Foreign Investment in Australia

26/03/2015   by The Hopkins Group

The latest research conducted by BIS Shrapnel found that the Melbourne CBD is to house 40% of new apartment buildings intended for the inner suburbs. They also found that concerns over a saturation of apartments in the city were not shared internationally. This is due to increasing demand from overseas investors – primarily the Chinese, who are looking to invest in the Melbourne property market.

Throughout the last few years there has been an apartment building boom that shows no signs of slowing down. BIS Shrapnel noted that investors are driving this recent boom, and up to 58% of apartments in inner Melbourne are rental properties.

The latest government changes to foreign investing are highly unlikely to have much of an impact.

Some of these changes include:

  • A $5000 fee upon application to purchase a property (of less than $1 million); and,
  • A $10,000 fee for each extra $1 million on the purchase price

Perhaps the main reason the Melbourne CBD is seeing most of the action in terms of development is because there are less restrictions on developers. They can build taller, as opposed to other suburbs where the restrictions are more of a hindrance.

Are Foreign Investors Impacting the Local Property Market Across Australia?

Most people in the real estate world would agree that foreign interest is creating a lot of waves within the property market. For example, in the Australian Property Institute’s bi-annual Property Directions Survey, 96 per cent of analysts said foreign investment was a “significant to very significant” driver of increased prices in the Sydney market.

Is The Interest From Foreign Investors Increasing Property Prices?

Foreign investment has been blamed for the significant increase of property prices throughout the last 3 to 4 years. The Reserve Bank of Australia has also warned that continued foreign investment could in fact hurt Australia’s economy – and ultimately make it more difficult for first home buyers to break into the Australian property market.

What Are Some of the Figures Associated With Foreign Investment?

According to the Foreign Investment Review Board:

  • The majority of foreign investment is centred on Melbourne and Sydney
  • Between July in 2013, and March in 2014, $24.8 billion worth of foreign investment has been approved.
  • The above sum is 44% higher than the $17.2 billion between 2012 and 2013.
  • Between July 2013 and March 2014, the FIRB approved the purchase of 5755 existing properties.

While the Foreign Investment Review Board (FIRB) does examine each proposal by people overseas who wish to purchase Australian property, they do encourage and welcome foreign investment in Australia.

The FIRB believes that foreign investment helps build and stabilise Australia’s economy, while increasing jobs and promoting growth and well-being for Australia as a whole.

There are two points to make about foreign investment.

Firstly, construction is one of few bright spots in the Australian economy. Further, it’s reasonable to say the most important part of construction has been, and still is, residential development. Nearly all of these residential developments will not be developed if they are not about 80% sold before construction starts. And of the sales of these properties, most are to investors; both local and overseas. This activity is great for the economy, great for population increases, is creating vibrant metropolises and generating great investment for purchases when it’s the right property in the right location.

Secondly, to achieve appropriate levels of returns, security and flexibility for a property investment portfolio, you need to have continuing strong demand of both tenancy and sale for now and the foreseeable future. It’s also essential to have strong demand from tenants, investors and owner occupiers. So it’s important to remember that no matter how many properties are sold to investors, the property must still appeal to the owner occupier market in terms of style and function.

What do you think about foreign investment in Australia? Give us a call on 1300 726 082 if you would like to speak with one of our property investment advisers or click here.

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