FOREIGN INVESTMENT INTO REAL ESTATE HAS BEEN HOTLY DEBATED, PARTICULARLY ON THE EAST COAST WHERE A PRICE SPIKE WAS LINKED TO OVERSEAS BUYERS. WHAT A LOT OF PEOPLE DON’T REALISE IS THAT THE CURRENT SITUATION IN AUSTRALIA, INCLUDING THE RELEASE LAST WEEK BY THE FEDERAL GOVERNMENT OF A DISCUSSION PAPER OUTLINING NEW FEES, WAS TRIGGERED FOUR YEARS AGO BY A DECISION IN CHINA TO COOL THEIR PROPERTY SECTOR.
At the time prices were climbing rapidly, nearly tripling in the three years to 2009 and there was increasing pushback by residents in China about housing affordability. In response the Chinese government put limits on the availability of credit for mortgages. First home buyers needed to find thirty percent for the deposit whilst the down payment for a second home was considerably higher. Many cities also imposed limits on the number of residential properties that could be held by an individual, even if paying cash. Bejing banned the sale of homes to those who had not lived there for a minimum of five years and allowed a maximum of two properties per family. It was this last restriction which led to the growth of investment into foreign property markets by the increasingly wealthy middle class in China.
At the UDIA Conference in 2012 the growing demand for overseas investment opportunities was outlined by Property Guru’s, a company that linked Chinese buyers to overseas properties. At the time CEO Steve Melhuish said that the key markets of interest were London, Malaysia and Australia; Singapore had already followed China’s lead and put caps on residential property purchases. He also said investment was likely to be focused on the east coast Australia because most Chinese were not aware Perth existed!
Roll forward to 2015 and Steve’s predicted investment has been realised with Australia now looking to manage foreign ownership after growing concern that local first home buyers were struggling to get into the market. Proposed fees include a $5,000 application fee for property purchases under $1,000,000 and a $10,000 fee for properties over $1,000,000, increasing by $10,000 for every additional million in value.
The challenge for the Federal Government is managing risks (real or perceived) relating to foreign investment into retail residential property whilst encouraging the investment that supports new development for local home buyers.
The Chinese residential market has now cooled and ownership limits are being relaxed so the investment into Australia may slow regardless of changes to our policy settings.