Foreign buyers are pricing Aussies out: Patrick Bright

Put simply, the federal government’s policy on foreign investment is pushing properties out of the reach of Australians.  

Under existing laws, developers are able to sell 100% of their developments to non-residents.

The knock-on effect has seen some developers almost exclusively marketing properties to foreign buyers who have deeper pockets than Australia’s first home buyers.  If the rules didn’t dictate that they need to also locally market then they most likely wouldn’t bother, as very few locals will pay the prices they can command from foreigners who are keen to get their money out of their home country and into Australia.

Prior to 2009, developers were only allowed to sell up to 50% to non-residents. Personally I thought that 50% was more than double what it should have been as that sizable percentage is enough to skew the local market value of a development.  But in an attempt to stimulate the construction market, the then Rudd Government relaxed the laws allowing 100% of new developments to be sold to foreigners in what I regard as a knee-jerk reaction to the GFC.

There is little doubt from those with their finger on the pulse that the change of rules contributed to the real estate market rising as much as it did in 2009.  One of the changes that I believe was so impressionable on the market rising (which about 14 months later was reversed) didn’t even require foreign buyers to apply for purchasing approval.  Can you imagine a situation where a foreigner could just look at domain.com.au, decide they want to buy a property they see, email the selling agent with an offer, then proceed to exchange contracts?  It sounds crazy but essentially that was what was happening.

Australia’s relatively strong economy and history of fairly stable and constant capital growth for real estate in its major cities will continue to drive foreign investment in Australia and push prices much higher than they already are.

The proportion of new houses and apartments being purchased by foreign buyers has doubled in the space of two years. According to the latest NAB residential property index, foreign buyers now account for between 12% and 13% of all new residential property purchases. Harbourfront developments like Sydney’s Barangaroo which sold out before lunch on the launch day including one-bedders at $1 million, two-bedders at $2 million and three-bedders at $3 million are further evidence of a fuelled market. Total sales exceeded $300 million in the first release.

The current policy is forcing generation X and Y into becoming a generation of renters at a greater percentage than they otherwise should or would like to be.  This will have many other knock-on effects in years to come for example it’s likely to put extra pressure on the social security system as buying and paying off your own home is a form of forced saving. As, let’s face it, most people who rent don’t invest at the level they should to avoid renting forever.

If the new federal Abbott-led government doesn’t tighten up foreign investment laws, non-residents will continue to buy Australian real estate (both residential and farming) at an increasing rate as they want their money in Australia because they see it as a stable, strong economy especially compared to their own.

No doubt most Australians like me are more than happy for non-residents who are here on working visas to buy properties and enjoy them while they’re here if they don’t want to rent on the proviso that they sell them when they leave.  I fail to see how allowing non-residents to buy Australian real estate - in many cases not even renting them out - is helping Aussies fulfill the great Australian dream of buying their own home which should be the core mission of any government policy in regards to housing.

Patrick is the author of four best-selling real estate books known as “The Insider’s Guide to Buying Real Estate Series.”