Foreign investment impact on local market worsens

GUEST OBSERVER

Australia needs a fair foreign investment policy that offers Australians equal opportunities.

For foreign investors, Australia is a desirable country because of its stable economy, favourable weather conditions and proximity to Asia. Furthermore, 2016 will be the year international developers take centre stage in Sydney – more than in previous years.

There are many other factors at play that make Australia so desirable and, for investors, there is less red tape and fewer restrictions on how many properties they can buy. 

In contrast, in China, for example, each province has different rules and regulations, with some provinces only allowing residents to purchase a maximum of two properties. 

The International Monetary Fund says that China has the most expensive property in the world. The median house price in Beijing is believed to be 20 times the annual household disposable income, so it’s understandable that they’re looking elsewhere. Sydney and Melbourne represent good value by comparison.

The number of Chinese investors in Australia might fall in Australia within the next 2-3 years and that Indian investors will make Australia their first port of call.

In my opinion, we will start to see Chinese investors possibly fading away from the Australian market depending on their slowing economy in the next few years, and will see a genuine emergence of buyers from India.  They will find it attractive for the very same reasons the Chinese do.

Land and property sales data suggests that foreign investors are now getting in on the process earlier to close the loop.

Many sites have been snapped up by international developers and the reality is that we can’t stop it from happening, not in this global economy. In saying that, it’s only fair, right and appropriate that Australian residents have, at the very least, equal opportunity.

Australian residents should be looked after; they shouldn’t be at a disadvantage to foreign nationals.

Safeguarding the interests of Australian residents should not be confused with being xenophobic, as they’re two very different things. We should still openly invite foreign investment, I just believe that it should come with more restriction and regulation. I was born in Britain so this isn’t a jingoistic standpoint, I merely want to see the same rules be applied to anyone buying in Australia irrespective of where they are from.

Conflicting information about the current market is making it confusing for Australian investors struggling to keep up.

As far as I can tell, there aren’t any accurate numbers available on the extent to which foreign investment is impacting the local investor community and house prices. Significant research is needed. As a real estate head with years of experience in the Australian market, I myself am having difficulty comprehending the situation, so what chance does the average layperson have?

Five solutions for a fair foreign investment policy that gives Australians equal opportunities:

1. Introduction of a levy. 

I absolutely advocate the introduction of a levy.  Last year the government introduced a tax for overseas investors, but in my opinion, this should be increased.  Australian residents are forced to pay for extras such as stamp duty when they buy property and I believe overseas investors should have to pay even more.

2. Placing a cap on the number of properties sold to overseas investors. 

We should regulate the number of properties on Australian soil that are sold to overseas investors:

It’s a bit of a mockery if Chinese investors can only buy two properties in some of their own provinces, but they can come to Australia and can buy 10. It doesn’t matter where investors are coming from – and they’re coming from all over the globe – it’s about looking after the interests of the Australian people.  

3. Clean money assessment.

 A handful of high-profile and high-net cases last year were intentionally made public to oust some illegal transactions happening and spook off unscrupulous investors, and Douglas believes that many more could have gone unnoticed. 

These homes were just the tip of the iceberg and my question is, what about the rest of the iceberg? Do we have any idea how big it is? We know that illegal transactions are taking place because of these cases, and that these acquisitions by foreign investors breach regulations. There is a strong suggestion that this is regularly taking place in the upper echelon of the Sydney and Melbourne markets.

We need to take a harder look into where the money is coming from, as there has been some suggestion that it’s not always clean. The UK government, for example, has implemented money laundering checks and Australia should be doing the same.

4. Financing rules around the acquisition process. 

As is currently stands, financing is not fair for the local investor. We know that a Chinese financial institution based in Australia offers zero deposit home loans for Chinese investors purchasing Australian property. Here, under new macroprudential guidelines, we have Australian residents now required to pay a 20 per cent deposit on a property whilst international buyers can completely circumnavigate the system. It’s ludicrous, all buyers should be on a level playing field in the process and financial aspect.

5. Percentage of developments must be sold to Australian residents.

Up until 2008, developers had to sell a portion of properties to Australian residents. This lifted in the GFC but it’s my view that we should re-establish it and place a limit on how many investments they can buy. I heard that last year only 10-15 per cent of off-the-plan developments in Sydney and Melbourne were sold to overseas investors, but that conflicts with other reliable reports, saying that it was closer to 40 per cent.

It’s increasingly common for foreign investors to buy and develop or redevelop, then sell property on Australian soil off-shore or to international investors without Australian residents even getting a look in.  We need to look at the vulnerability of our market – does selling too much to overseas investors make us become vulnerable to factors outside of our control?

DOUGLAS DRISCOLL is CEO of real estate agency Starr Partners.