The Parliamentary inquiry into foreign investment: A quick submissions cheat sheet

GUEST OBSERVATION

It’s rare when something from Parliament obtains the obsessive attention of the real estate industry.

The Parliamentary inquiry into foreign investment in residential real estate is an exception. Since so many interesting facts have come to light through the inquiry, this post is a helpful cheat sheet to the most important ones.

Foreign Investment: It’s Actually Plummeting

One of the most interesting submissions to the inquiry comes from Urban Taskforce Australia. They pointed out that foreign investment in Australia is not increasing, but decreasing. (Read their submission here.)

That’s happening despite the greater number of buyers from China, who have been the salvation of any number of stranded vendors.

Overall foreign investment in Australian plummeted by 18%, according to official statistics, between 2011 and 2013. Some governments would consider such a large and fast drop to be a crisis in the making.

This is where the Chinese come in. In the context of rapidly falling foreign investment, the Chinese are the rare bright spot. I know this isn’t how things are usually presented, but it’s what the facts show.

The US, Singapore, the UK — these once-reliable friends have dramatically cut their investments in Australian property. With other friends deserting our real estate market, the Chinese are almost alone in sticking with us. 

Rather than abandoning our property market, Chinese have actually increased their investment. They haven’t yet reached the heights of $8.2 billion that the Yanks reached in 2012. However, with a 40% increase to $5.9 billion last year, the Chinese can hardly be accused of failing to pull their weight.  

Foreign Buyers Mean More New Buildings

The submission from Meriton, Australia’s largest apartment builder, showed that foreign buyers actually create new housing in Australia. (Read the Meriton submission here.)

Meriton wrote that foreign investment "provides a significant contribution to the stock of new Australian housing," increasing supply for sale and rent.

Meriton founder Harry Triguboff says that foreign investors buy 13% of his new apartments – often off the plan. That provides "vital initial impetus” that makes possible the construction of Meriton’s new complexes. 

He also points to government data that shows that foreign buyers pay an average of $1.06 million for established homes and $646,000 for new dwellings. That’s much more than the national median and puts them in another league altogether than first home buyers.

While Foreign Buyers Spend More, They Pay Less

One submission to the Parliamentary inquiry involved actual new research. Lorenzo Casavecchia and Adrian Lee of the University of Technology in Sydney looked at about 74,000 established home sales. (You can download their paper here.)

They found that the number of Chinese buyers went up over time. That matches with the data we’ve already looked at, showing more Chinese investment in recent years.

What’s shocking, given what passes for accepted wisdom about Chinese buyers, is that the pair also found that, “on average, Chinese buyers pay 2.04% or $13,800 less than other buyers.”

I won’t get into every little detail of this fascinating research paper, so suffice to say that they controlled for just about every conceivable factor that could affect the price.

The low-down is this: while foreign buyers buy more expensive homes, they seem to get them at a bargain. That makes it unlikely that they are pricing other buyers out of the market. 

It’s hard to price someone out of the market when you’re paying less than the market price.

Perhaps the most poignant submission to the Parliamentary inquiry was from a Mr Kristijan Gjikoski. He wrote, simply and directly. Here are his own words, slightly edited for length (read his whole submission here):

"Please don’t change any laws in relation to foreign real estate investment, [which is] creating jobs in manufacturing, trades and services. Long term overseas investment can been seen as a automatic stabiliser as when things go bad." 

Andrew Taylor is the co-CEO of Juwai.com.

Image courtesy of JJ Harrison/Wikimedia/Creative Commons.