Higher government taxes and tougher legislation are unlikely to deter the nouveau riche of Asia seeking to diversify their investment portfolios.
Residential real estate is increasingly a global commodity. In the end, market forces, not government regulations, will determine the level of foreign investment in Australia’s residential sector.
The choice of investment destination will be influenced only partly by financial considerations. For many, the driver goes far deeper than dollars and cents.
Sarah Nicholson, head of international project marketing Asia at CBRE, describes Asian investors as being “shock-proof” because they are used to their governments bringing down successive rounds of cooling measures. What's more, Australia has a relatively lower purchase cost compared to other parts of the world.
Hong Kong-based Gavin Sung, head of international residential sales at Savills Asia Pacific, says people recognise that the Australian government needs to look after Australian buyers first -- and to ensure that foreign investment does not swamp domestic investment.
The irony is that the devaluation of the Australian dollar and the latest round of interest rate cuts have combined to make Australian real estate even more attractive.
“Over the course of the past 12 to 15 months, the Australian dollar has weakened significantly,” he says.
“This translates to a saving of about 20 per cent on the price of a property. And now, with the RBA cutting rates again, borrowing in Australia is even cheaper.”
Sung says many clients regard real estate investment as a “currency play”. They look at the key mature markets -- Australia, the UK, the US, and New Zealand -- with an eye on currency movements.
Right now the smart money from Asia is looking to Europe. “They are talking about buying into Germany, Spain and Italy, and the more speculative places like Greece,” says Sung.
With the yen down around 20 per cent against the US dollar, Japan is also attracting money from elsewhere in Asia, particularly Taiwan.
“The Taiwanese divest into other markets (like Australia) to get away from punitive taxes at home, while the mainland Chinese look to trade out of yuan into other currencies,” says Sung.
However, Sung says most foreign investors are not speculators who move in and out with currency movements. Far from it: they hold for the medium to long-term because currency is just one factor in their decision to invest offshore.
Education and an intention to eventually migrate are the key drivers for buying real estate overseas, according to agents.
CBRE’s Nicholson says Asians plan well into the future from when their children are toddlers. Typically, they want to have their children educated in Australia, the UK or the US.
There is also a political imperative. Several agents told Business Spectator that capital has been flowing out of countries like Malaysia because of concerns over government policies and political uncertainty.
For decades now -- although it appears to have accelerated in recent years -- non-Malay professionals and business people from Malaysia have bought property, particularly in Australia and the UK, as insurance for their family’s future.
From December 1, 2015, non-resident buyers will pay a fee of $5,000 for property under $1 million, with increments of $10,000 for every $1m thereafter.
Additionally, from July, the Victorian Government will impose a 3 per cent stamp duty on foreign buyers. Those who leave their property vacant will also have to pay a form of holding land tax.
Meriton’s national sales director James Sialepis says that when added together, the new rules and charges could add $40,000 to $50,000 to a typical property sought by foreign buyers (priced between $700,000 and $900,000).
“We are worried that other states may similarly impose additional stamp duty on foreign buyers,” he says, adding that such moves are damaging confidence in the Australian market.
“There are so many options around the world for these investors. Governments are strangling the golden goose,” he says, stressing that foreign buyers help to prop up the development industry when local buyers are not in the market.
Nicholson says: “We are seeing a slight reduction in the number of UK developers launching their projects in Singapore because the UK domestic market is so strong. Developers won’t incur the cost of overseas marketing when they don’t have to.”
With the Sydney market running white hot in recent months, fewer Australian residential projects are being marketed in Singapore this year. So far in 2015, there have been 22 Australian project launches, slightly lower than at the same time last year.
But Nicholson agrees with other agents that it may be too early to call this a trend.
Australian developers began to target Asian markets in earnest in 2012. The number of Australian residential launches in Singapore, for example, has been increasing around 20 per cent a year (there were 139 launches in 2014).
Australian-educated Ian Chen, chief executive and founder of Jalin Realty International, estimates that enquiries for Australian real estate from Singapore are down by 20-30 per cent this year, restrained by new regulations on lending in Singapore.
Chen believes the twin impact of higher prices and a drop in stock available to foreign buyers as the Australian domestic market picks up could also deter foreign investment.
He adds that foreign buyers will naturally pull back when they perceive a market to be expensive, adding that prices have gone up by 10-15 per cent in Sydney and Melbourne as those markets pick up.
Peter Thng, executive director of Reapfield Property Consultants, set up in Singapore in 2001 primarily to market Australian real estate. He says more savvy investors look for value and that currently, better-value properties are located outside the central business districts of Sydney or Melbourne.
He says brand new house and land packages in the west and south east of Melbourne, for example, offer better value than two-bedroom apartments in the heart of Melbourne.
Nicholson expects to see foreign buying interest shift to Brisbane, the Gold Coast and Perth because investors believe they offer better growth potential than Sydney or Melbourne.
Thng agrees that affordability is an important issue for foreign investors as it is for Australians.
Mainland Chinese buyers are more cost-conscious than other Asians. They have mostly purchased property priced below $1 million.
Anecdotally, using their Australian contacts, the Chinese are the most competitive buyers of existing dwellings from suburban agents. It is your suburban agent who is bringing most foreign buyers into the market, not the project developer.