International investment in Australian real estate. What are the facts?

A seemingly common question regarding Australia’s current property market is whether or not foreign real estate investment, particularly Chinese investment, is driving up real estate prices. According to the Foreign Investment Review Board (FIRB), the objective of Australia’s policy on foreign investment in real estate is to increase the supply of new housing stock rather than to affect the value of property. This is managed through a set of rules that limit international investors from purchasing established property. To buy an established property, the purchaser must have been an Australian resident for at least 12 months or else be purchasing the property in partnership with an Australian resident, and they must also apply for foreign investment approval from the FIRB before a purchase is made. It must be noted, however, that very few applications are rejected with foreign investors buying new homes, vacant land or off-the-plan apartments.

Foreign investment has always happened in Australia and generally been good for the nation’s economy. In more recent times, the level of international investment has certainly increased. However, according to the Department of Treasury, this has not been a driving factor in affordability of housing. Rather the effect is positive, assisting in the development of new residential estates, housing stock and taxation revenue.

The FIRB reported that at the end of the 2014 financial year, total foreign stock investment in Australia exceeded $2.8 trillion. Looking specifically at real estate investment, China is leading the charge with $12,406 million invested in Australian property. As detailed below, foreign investment in Australian property appeals to a surprising range of nationalities:

Dollar value of real estate investment approvals by country (2014)

1 China $12,406 million
2 United States of America $6,135 million
3 Singapore $4,303 million
4 Canada $2,945 million
5 Malaysia $2,038 million
6 United Kingdom $1,795 million
7 Netherlands $1,720 million
8 New Zealand $1,362 million
9 Hong Kong $1,279 million
10 Germany $1,169 million

(Source: Foreign Investment Review Board)

The Australian Government recently announced changes to the foreign investment framework which will be introduced in the 2017-2018 financial year. The new regulations include:

  • A 50% cap on the total amount of dwellings a developer can sell to foreign persons under a New Dwelling Exemption Certificate
  • An annual vacancy charge on new foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least 6 months/year
  • Application fees for foreign purchases of residential properties valued at less than $10 million will increase by 10% on the current fees

These changes are aimed at freeing up investment properties for Australian purchasers, increasing the availability of rental stock and increasing tax revenue for the Australian Government.