DR ANDREW WILSON, Senior Economist at Domain Group, analyses the findings of the recent Parliamentary Enquiry into the effects of overseas buyers on the real estate industry, including how increases in foreign students are driving purchasing and rental activity.
AUSTRALIAN HOUSING markets have generally activated over the past three years through a significant improvement in affordability and confidence.
The sharp cuts in interest rates from late 2011 to 2013, to the lowest official rates in 60 years, has been the key driving force for increased buyer activity and prices growth.
The Sydney housing market has been the leading perform¬er of all the capitals over the past three years, with decade-high prices growth. With prices rising strongly and concerns over affordability, renewed focus has been generated on the role of foreign buyers, particularly in the top-performing Sydney and Melbourne housing markets.
The rules for foreign investors in Australian housing markets are clear. There are no restrictions for buyers of new property. This is particularly beneficial for the Sydney market, where underlying prices growth has been driven through a chronic imbalance between supply and demand.
Concerns have been voiced that the level of foreign investment, particularly in the Sydney housing market, has contributed to strong prices growth in that city. The latest data from the Foreign Investment Review Board (FIR B), however, indicates that the contribution of foreign buyers to housing market activity is minimal.
The FIRB approved 7,195 applications by foreign buyers for established home purchases in Australia over the 2013-14 financial year. This represented just 2.4 per cent of all established house title transfers registered nationally over the same period, according to the ABS.
Victoria recorded the highest number of established home purchases by foreign buyers over the year with 3,483, followed by New South Wales, well behind, with just 2,353. Victoria unsurprisingly had the highest proportion of foreign established home purchasers to total established home sales at 4.1 per cent, with New South Wales again well behind with just 2.4 per cent.
The Federal Government, showing concern over the level of foreign investment in Australian housing markets, has recently conducted a Parliamentary Enquiry examining the issues.
The Committee recommended no change to the existing rules for foreign purchasers, reflecting confidence that price inefficiencies were not occurring and that new investment was a positive for the market and the economy generally.
The Committee, however, recommended changes to the monitoring of foreign investment activity, enforcement of the rules and new penalties for breaches.
An application fee will be levied to cover new audit, compliance and enforcement of the rules. There will be stronger civil penalties for breaches and foreign purchasers will be required to sell the property within three months of it ceasing to be the principal residence.
Following up the Committee’s recommendations, the Federal Government announced in the Budget new fee structures for foreign buyers of real estate, with a $5,000 application fee for purchases under $1 million and $10,000 for properties valued over $1 million, plus an additional $10,000 fee increase per additional $1 million in property value.
Foreign investment in Australia’s housing markets remains beneficial, but activity levels must be accurately monitored.
Many, if not most, temporary visas granted to foreigners are for students studying in Australia. The Federal Department of Education and Training reported that there were 433,936 international students enrolled at Australian educational institutions in the year to date this April, an increase of 11.2 per cent compared to the year to April 2014. Foreign students are also an important driver of Australia’s real estate industry through purchases and rentals.
Given the decline of Australia’s resource sector and the transition of our economy into other mechanisms for generating growth, the education export sector will become increasingly important to our economic wellbeing, inclusive of its benefits to the property sector.
