Why the federal government must change its foreign investment policy

I'm not against foreign investment and I'm not against the property market increasing in value.  What I don't agree with is the current 'Foreign Investment Policy Settings' in regards to property acquisition by non-residents or non-Australian citizens.

The two main concerns I have are that it's inflationary and that it will create a generation of renters which will result in other knock-on social issues down the track.

Under the current policy, 100% of a new apartment blocks or any new housing with FIRB (Foreign Investment Review Board) approval can be sold to non-residents. As a result of this there is no doubt that we are seeing prices (particularly in our capital cities) being pushed up higher and faster than they otherwise would be without foreign buyers thereby creating an inflationary effect.

As a nation we have prided ourselves on giving all Australians a fair go. In contrast this current situation prices many would be Australian home buyers and investors seeking to secure their future out of the market. It is forcing many to rent now who would otherwise like to purchase and could create a generation where more rent than own diminishing for many the great Australian dream of owning their own home.

The reality is that the property market is strong enough without adding more demand to what is widely reported by several housing bodies as a market that has an under-supply. Currently those stats show the under-supply to be in excess of 200,000 properties and this is increasing.  So there's no question that we have plenty of demand locally without "importing it".

The flow on effects of the current policy must also be examined. We are likely to see a generation that will be far more financially dependent on the government come retirement having not established the financial security of buying and paying-off their own home.

Financial modelling for self-funded retirees (which is the purpose of super) has the assumption that retirees have paid off their home. If they are still renting then it's likely they will require an additional million dollars in super or other investments (be that cash, shares or property) to fund their rental costs, for the rest of their lives.  If they don't then it’s highly likely they will be dependent on some form of government pension or financial support to pay their rent.

It's well understood that once people/families are dependent on welfare it often becomes generational. Clearly more people being dependant on government financial support is not in Australia's long-term interest.

I have written to the PM with my recommendations for adjustments to the policy which would essentially restrict the amount of properties that can be sold to non residents in any one particular development to a less inflationary level of less than 10% and to place a limit on how many properties any one individual non resident can purchase in Australia.

The federal government has the responsibility to create quality, sustainable policy and make adjustments to the current foreign investment rules so that we don't end up with social problems for future generations. I am optimistic that the new government will address this very important issue as it's become increasingly apparent that the current policy needs adjusting.

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

This article first appeared on www.epspropertysearch.com.au.