Offshore buyers are here to stay

The purchase of domestic real estate, and in particular residential real estate, is a topic that frequently attracts a lot of attention.

That’s nothing new; some of the same ‘concerns’ we hear and read about today have all been aired before. At various times and across different markets we have, for instance, seen big in-flows of money from Japan and the Middle East.

However offshore investment into our housing market always tends to be a touchy subject. I think that we should not see this as threatening or abnormal and as far as new projects are concerned, the impact of these buyers needs to be seen in the greater context of the total market.

It is unfortunate that currently any negatives surrounding this debate are being fuelled by a number of factors. Key among these is the reality that the inflow of funds is not aligned with our general market conditions. So as we see prices increase, and in some markets this may be impacting first time buyers, some blame is being attributed to offshore buyers. But there is also a clear benefit from the fact that demand in total is now driving a big increase in construction activity, and that is at a time when the local economy needs that stimulus.

Key motivations

Part of the reality of this trend is the fact that across Asia and in particular from China there is a weight of money available for investment. some of that money is regardless of any policy settings, naturally going to flow into our residential property. But are the key motivations of buyers necessarily any foundation for concern? I suggest that these buyers are in the main driven by motivations that we are all familiar with.

Accepting that almost all markets now operate on a global basis, offshore buyers will be motivated by quality of life, economic stability, good infrastructure – this includes both hard infrastructure like roads and everyday services such as power and water, but also soft infrastructure and a big item there is education and medical facilities. Lastly offshore buyers are attracted by political stability. A quick tally would clearly give Australia a big tick on all of these items and so it’s a good and appealing place to call home.

There is clear benefit from the fact that housing demand is now driving a big increase in construction activity, and that is at a time when the local economy needs that stimulus.

We also now have in Australia inter-generational changes that are reinforcing family ties and these are a big influence. it’s worth keeping in mind that we have seen this trend before. In particular as post-World War Two and post Vietnam brought about new waves of population growth.

I think that it’s easy to identify with these motivations, and also like most of us, it is the stability of the Australian lifestyle that is a strong appeal.

SENATE REVIEW

However now, and somewhat predictably, The Treasurer has asked the Senate House Standing Committee on Economics to inquire into and report on Australia’s foreign investment policy as it applies to residential real estate.

A key starting point is the principle of Australia’s foreign investment policy, as it applies to residential property, is that the investment should increase Australia’s housing stock and as such this includes new developments that aim to deliver benefits to the local building industry and its suppliers. Which is now starting to happen.

Off-shore or foreign investors cannot generally buy established homes; however, temporary residents can apply to purchase one established dwelling to use as their residence while in Australia.

Despite these conditions and in view of some of the concerns already outlined the Committee has been asked to examine:

• The economic benefits of foreign investment in residential property;
• Whether such foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers;
• How Australia’s foreign investment framework compares with international experience; and
• Whether the administration of Australia’s foreign investment policy relating to residential property can be enhanced.

This looks like a quick review with the Committee’s report due in early October 2014.

LET’S NOT FORGET OTHER POLICIES

If as it appears the Senate Review is partly in response to helping keep homes affordable in particular for the FHB market, then it would also be an ideal time for government to look at how much government charges and red-tape adds to the cost of a home.

Stamp duty for example is levied on the GST already built into the cost of a new home, and development delays almost defy reason without any real benefits.

Could all levels of government be more engaged in creating a positive environment for new housing by direct leadership and by ensuring a more collaborative, results focused view among decision makers that directly or indirectly impacts housing supply and costs.