As the RBA’s latest minutes bemoan the Australian dollar’s decline as still inadequate, fresh evidence has emerged showing offshore buyers are snapping up Australian property at increasing rates.
In a pertinent reminder of how residential real estate is increasingly a global commodity, foreigners bought more than 28 per cent of all new apartments in Melbourne in the June quarter, according to figures from National Australia Bank.
NAB’s survey of property professionals found foreign buyers accounted for more than 16 per cent of all apartment sales in the new property market, and more than 11 per cent of all houses.
“Despite stricter restrictions on foreign investment in the established residential property market, the survey suggests foreign buyers play a fairly significant role in this segment of the Australian housing market,” NAB said.
It is no longer possible to dismiss the influence of foreign buying on property prices as trivial, either here in Australia or in global markets such as the US and UK, Canada and Auckland.
Chinese buying of Australian property in particular has already been pointed at as the cause of significant competition driving price increases in housing in Sydney and Melbourne. Foreign Investment Review Board figures put China as the largest foreign real estate investor in Australia, followed by the US.
This will only be compounded by the recent actions by Chinese authorities to suspend thousands of shares from trade, eroding investor confidence. Observers expect this to encourage the flow of Chinese money offshore and push up global asset prices, regardless of economic growth rates.
Though some commentators have suggested this is merely a learning experience for Chinese authorities, Jeremy Bendeich, portfolio manager at Avoca Investment Management, says China’s recent market interventions make Australia look increasingly attractive as an investment destination for Chinese nationals, and commercial and residential property are likely to be favoured destinations.
“We are mindful that if a Chinese mainlander is the marginal property buyer, then they may pay a premium for residency optionality, clean air and certainty -- features that domestic buyers do not factor in,” Bendeich says.
He notes that if the worst punishment for buying a house in breach of foreign investment laws is that you have to sell it again, potentially to a related party, then the “downside is tolerable”.
There are some new measures to beef up offshore buyer requirements ahead. 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. From July, the Victorian Government will impose 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.
This has been estimated to add up to $50,000 to a typical property sought by foreign buyers, who often intend to educate their children in Australia, or the US or UK, and migrate.
Exchange-rate effects have already impacted foreign buying in the US. For years, Canadians were the biggest foreign buyers of US homes. But Canadian sales have declined recently, in part due to the weak Canadian currency.
Chinese buyers have now surpassed Canadians as the dominant foreign buyers of homes in the US, according to the National Association of Realtors, purchasing $US28.6bn of properties in the US to represent 16 per cent of international buyers in the year to March.
While the RBA says it is still not satisfied with the recent fall in the Australian dollar from US94c to US74c, this mitigates at least 12 months of local property price gains for offshore buyers, making them unlikely to lose interest on the basis of sale price. While local investors might expect capital growth to slow, it can be a whole different story when exchange rates are factored in.
Any further falls in the Aussie dollar are likely to result in even more attractive buying conditions for foreign buyers, with some observers predicting exponential growth in property investment from China for some time.
That won’t help the case for local residents trying to get on the property ladder, or what Glenn Stevens has deemed “crazy” sale prices in some areas of Sydney.
