What should be done about foreign investment in Australian real estate?

Foreign investment into Australian real estate has attracted more attention than almost any other housing issue in recent times.

Some believe that foreign investors are responsible for rising home prices. Others, like Malcolm Gunning of the Real Estate Institute of New South Wales, claim foreign investors are helping Australia’s economy.

Property Observer asked the experts, “What should be done about property investment from foreign buyers?”

Terry Ryder, Hotspotting.com.au founder

Nothing. There is nothing Australia needs to do about foreign investment in Australian real estate.

This is a non-issue. Foreign investment is a minor part of the total property buying landscape and is generally confined to high-rise apartments in the inner-city areas of the major capital cities, plus the Gold Coast.

The claim that they are pricing young Australians out of home ownership is quite ridiculous. Foreign investors (for foreign, read Chinese) are not buying in the same areas as typical first-home buyers. They buy prestige homes and high-rise inner-city apartments.

As I have commented in the past, some people have an issue with foreign investment but only when it comes from Asia. The last time this was an issue was in the 1980s when Japanese investors were active. Until recently, the biggest source of foreign investment in Australian real estate was the United States and no one had a problem with that.

The only step I would like to see taken on foreign property investors is to advise them that, in many cases, they are being sold dud real estate. Many are buying in the over-supplied inner-city markets of Melbourne and are likely to have a bad result. This could have repercussions for the wider market, as rents are likely to fall and prices may follow.

Shane Oliver, AMP Capital chief economist

There’s less of an issue than many think. There probably are issues around it. And it’s right, I think, to look into whether it’s too easy for wealthy foreign investors to buy into our property market, but never live in the property, but never rent it out.

 I think it’s grossly overstated. These things seem to come up every time there’s a surge in property prices, and Australians like to look to rich people or foreign buyers as a cause.

It seems to me that we’re seeing a pretty normal cycle. Prices were low, interest rates are low, people go to the bank to borrow some money, the banks lend them money, they buy houses, prices go up.

If those things hadn’t happened, if we hadn’t seen the normal cycle dynamic and it was all foreign buying or SMSF [Self Managed Super Fund] buying, then I’d be concerned. But prices are picking up in places where there aren’t foreign buyers.

The bulk of Chinese buying is concentrated in particular suburbs. It tends to be in ritzy areas – in Sydney’s it’s the lower north shore and the eastern suburbs.

And they’re not the places where first home buyers are.

I think there’s a case to look at it, to see if it’s too easy. We have arrangements in Australia where we seem to encourage investment in our assets as a way to gain entry to Australia. So we need to see if those lead to a distortion in our property market.

The chief policy focuses to help the property market should be to decentralise our cities and our population, and to make land more freely available for development. 

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