City apartments in Sydney and Melbourne are attracting plenty of foreign buyers. Photo: Jessica Shapiro
Foreign investment in housing has nearly doubled over the last year, with most approvals centred on new units and apartments in inner Melbourne and Sydney.
Foreign investment spiked to a record $24.9 billion in the nine months to March 2014 – an annualised financial year figure of $33.2 billion, according to a research paper by UBS Securities.
The figure for 2012-13 was just $17.2 billion, noted UBS. ‘‘This is up a booming 93 per cent year-on-year.’’
The figures represent investment approved by the Foreign Investment Review Board.
Although foreign investors have always been allowed to buy newly-built real estate, the rules on buying established housing have changed over the years. Currently, a foreigner may buy established housing but only if they hold temporary residence status and the purchase is approved by the Foreign Investment Review Board. Non-residents and short term visa holders can’t buy established houses unless the property is slated for redevelopment.
UBS noted that, in the nine months to March, 78 per cent of the investment was on new homes, with the rest on established dwellings. One in eight home sales is now a foreign purchase, said UBS.
‘‘Foreign investment now accounts for a record share (since 1991) of 12.75 per cent of the value of total dwelling turnover...up sharply from a trend of an 8 per cent share previously, and a trough of just 3.5 per cent in 09-10.’’
The impact on housing prices of the increased foreign investment was uncertain as there was no precise data available, said UBS.
Even though foreign investment ‘‘probably also raised the supply of housing’’ there was a ‘‘still likely net upward impact on prices’’.
However, this increase in prices was concentrated in ‘‘new, rather than established, housing’’.
The paper also noted that foreigners tended to buy expensive homes, which limited the impact on first home buyers.
The average price of a foreign-purchased established dwelling in 2013-14 was $909,000. For a new home, it was $670,000.
‘‘However, both of these foreign averages are well above the national turnover average of $550,000,’’ said UBS.
Quoting Reserve Bank of Australia analysis, the paper argued the impact on first home buyers of the foreign investment surge was likely to be minimal.
‘‘Competition with foreign buyers is still likely to be fairly small – as first home buyers generally buy in segments of the market where foreigners don’t have a major presence.
‘‘This reflects the fact that most first home buyers buy established, rather than new, dwellings; the first home buyer’s average purchase price of $328,000 is far below the price point of most foreign purchases.
‘‘We think this should limit the impact on first home buyers.’’
Overwhelmingly, most foreign investment in new housing was in Melbourne and Sydney. UBS noted that ‘‘78 per cent of foreign approvals of new housing occurs in New South Wales and Victoria – particularly in the high-density inner-city Sydney and Melbourne.
‘‘Actual foreign buyer share in these areas has increased sharply to now be material.’’