Foreign Investment

<html><body>
<p>GUEST OBSERVER</p>
<p>Where the land, or the interest in the land, is worth $2 million or more, the new law requires the purchaser to withhold 10 percent of the purchase price and send it to the ATO unless the vendor has obtained a ‘clearance certificate’ from the ATO and provided it to the purchaser prior to settlement.</p>
<p>This obligation arises regardless of whether the vendor is a foreign resident or not.</p>
<p>Parliament recently passed legislation amending the taxation law to impose withholding obligations on the purchasers of certain Australian assets – generally property purchased from a non-resident.  However, the changes will affect most purchases of property in Australia!</p>
<p>The amendments impose a 10 percent withholding obligation on purchasers of ‘Taxable Australian Real Property’ (generally, this means an interest in Australian land) from certain foreign residents, as well as certain ‘indirect Australian real property interests’ (such as shares in companies that own a lot of land) and options to acquire such assets.</p>
<p>The amendments will generally apply where the contract to purchase an applicable asset is signed on or after 1 July 2016.</p>
<p>Example</p>
<p>On 1 August 2016, Harvey enters into a contract to purchase a residential property in an affluent Sydney suburb for $2.5 million, with settlement proposed to occur on 1 October 2016.  He does not know whether the vendor is a foreign resident.</p>
<p>Despite many requests from Harvey’s lawyer, the vendor refuses to obtain a clearance certificate from the ATO to give to Harvey.</p>
<p>As Harvey is acquiring Australian land with a market value greater than $2 million and he has not received a clearance certificate from the vendor by the time settlement occurs, Harvey will be required to withhold and pay to the ATO $250,000, whether or not the vendor is an Australian resident.</p>
<p>The vendor will be able to apply for the certificate online BUT it is the purchaser’s responsibility to request it from the vendor. Ultimately, the purchaser is relying on their agent or solicitor to organise everything for them. Makes us wonder how many will forget so make sure you have a good one.</p>
<p><em>For more information, click <a href="https://xperion.com.au" target="_blank">here</a>.</em></p>
<p> </p>
</body></html>

jchancellor-FAypfDUnLy

Property 101: Seller and buyer obligations with $2 million plus clearance certificates

<html><body><div class="page" title="Page 1">
<div class="layoutArea">
<div class="column">
<p><span>GUEST OBSERVER</span></p>
<p><span>Proposals by the NSW government to make it harder for foreign investors to buy housing will only slow down housing supply. </span></p>
<p><span>The proposals by NS</span><span>W Treasury to impose a 1.5 percent surcharge on land tax on foreign investors in housing will be </span><span>a disincentive to invest in NSW.</span></p>
<p><span>It </span><span>seems that the aim is to match the surcharge in Victoria which will remove the point of </span><span>difference that NSW has.</span></p>
<p><span>The Sydney region needs 33,200 new homes a year according to the Department of Planning </span><span>but last financial year only 27,348 were built leaving a shortfall of nearly 6,000 homes. We must do all we can to boost housing supply and foreign investors have been contributing to this particularly through new apartments. To send a message that these investments are not wanted </span><span>in NSW can only reduce the flow of capital into new housing.</span></p>
<p><span>Foreign investors often help make development pro</span><span>jects become feasible by underpinning the </span><span>pre sales with up to 15% of purchases and this helps local purchasers buy into a viable project.</span></p>
<p><span>The argument for the surcharge seems to be to free up more housing for first home buyers by </span><span>reducing the number of purchasers but this can only lead to less new homes being built. With an undersupply already pushing prices up a further reduction in supply is likely to only increase home </span><span>prices.</span></p>
<p><span>There has been a slow</span><span>-down in housing approvals in NSW over the last 6 to 8 months and an additional tax on foreign investment in housing will only lead to a further slow-down. Already Sydney has the council amalgamations causing some concerns over planning and discussion about adding value capture levies to new development beginning to affect confidence in the </span><span>market so the possible extra levy on foreign investment will further erode industry confidence.</span></p>
<p><span><em>Chris Johnson is chief executive officer of property development industry group Urban Taskforce and can be contacted <a href="https://www.urbantaskforce.com.au/index.php?option=com_content&amp;view=article&amp;id=97&amp;Itemid=126#.Vdaart55dFI" target="_blank">here</a>.</em></span></p>
</div>
</div>
</div></body></html>

Foreign investment in housing helps with much needed supply: Urban Taskforce

<html><body>
<p><img src="https://counter.theconversation.edu.au/content/77959/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1"></p>
<p class="p1"><span class="s1">GUEST OBSERVER</span></p>
<p class="p1"><span class="s1">Sydneysiders are concerned that foreign investors, and particularly Chinese real estate investors, are pushing up housing prices, according to <span class="s2">survey findings</span> published this month. </span></p>
<p class="p1"><span class="s1">A majority believed foreign investors should not be allowed to buy residential real estate in Sydney.</span></p>
<p class="p1"><span class="s1">The <span class="s2">federal budget</span> was the government’s latest attempt at navigating a policy solution that supports its pro-foreign investment position while responding to public concern about housing affordability in Australian cities.</span></p>
<p class="p1"><span class="s1">China’s government is also searching for a policy solution to restrict the large amount of capital that’s flowing out of the country. But the Chinese crackdown “<span class="s2">doesn’t appear to be working</span>”.</span></p>
<p class="p1"><span class="s1">We surveyed almost 900 Sydneysiders to investigate their views on foreign real estate investment. The effectiveness of government regulations on foreign investment and investors was a major concern for respondents.</span></p>
<p class="p2"><span class="s1"><strong>Views on government regulations</strong></span></p>
<p class="p1"><span class="s1">The survey obtained the views of people aged over 18 living in the Greater Sydney region. They were asked about housing affordability, foreign investment, the drivers of Sydney housing prices, and perceptions of Chinese investors specifically.</span></p>
<p class="p1"><span class="s1">Support for the government’s regulation of foreign investment in housing was weak. Only 17% of respondents thought it was effective.</span></p>
<p class="p1"><a href="https://www.propertyobserver.com.au/images/2017/05/30/Screen%20Shot%202017-05-31%20at%209.10.10%20AM.png" target="_blank"><span class="s1">Click to enlarge</span></a></p>
<p class="p1"><span class="s1"><img src="https://www.urban.com.au/images/2017/05/30/Screen%20Shot%202017-05-31%20at%209.10.10%20AM.png" alt=""></span></p>
<p class="p1"> </p>
<p class="p1"><em><span class="s1">Source: <span class="s2">Public Perceptions of Foreign and Chinese Real Estate Investment: Intercultural Relations in Global Sydney</span></span></em></p>
<p class="p1"><span class="s1">Almost 56 percent of participants believed foreign investors should not be allowed to buy residential real estate in Sydney. Only 18 percent believed this should be permitted.</span></p>
<p class="p1"><span class="s1">More than 63 percent of participants disagreed that the “government should encourage more foreign investment in greater Sydney’s housing market”. Only 12 percent of participants agreed with this.</span></p>
<p class="p1"><span class="s1">These views stand in stark contrast to the government’s geopolitical support for foreign investment in Australia.</span></p>
<p class="p2"><span class="s1"><strong>Views on foreign investors</strong></span></p>
<p class="p1"><span class="s1">There is little <span class="s2">fine-grained data</span> about the impacts of foreign capital and investors on specific neighbourhoods and developments in Australian cities. Therefore, we did not set out to compare public attitudes against the <span class="s2">limited empirical evidence</span> on the effects of foreign real estate investment in Sydney.</span></p>
<p class="p1"><span class="s1">What’s significant about the survey results is that Sydneysiders have strong views on foreign investment, despite the absence of reliable evidence. Participants’ concerns about foreign investors and investment were consistent with their concerns about the government’s foreign investment rules.</span></p>
<p class="p1"><span class="s1">Around 63 percent of Sydneysiders identified the Chinese as the heavyweights of foreign investment. This is likely to be accurate, given the concentration of Chinese investment in Sydney and Melbourne.</span></p>
<p class="p1"><span class="s1">When presented with the statement “I welcome Chinese foreign investors buying properties in my suburb”, more than 48 percent of participants disagreed.</span></p>
<p class="p1"><span class="s2">Other studies</span><span class="s1">, however, have shown the potential for public confusion between domestic Australian-Chinese and international Chinese buyers.</span></p>
<p class="p2"><span class="s1"><strong>Views on the drivers of housing prices</strong></span></p>
<p class="p1"><span class="s1">Respondents were asked to choose up to three drivers of house prices based on their understanding of Sydney’s housing market. By far the most commonly nominated driver of house prices (64 percent of respondents) was foreign investors buying housing.</span></p>
<p class="p1"><a href="https://www.propertyobserver.com.au/images/2017/05/30/Screen%20Shot%202017-05-31%20at%209.11.43%20AM.png" target="_blank"><span class="s1">Click to enlarge</span></a></p>
<p class="p1"><span class="s1"><img src="https://www.urban.com.au/images/2017/05/30/Screen%20Shot%202017-05-31%20at%209.11.43%20AM.png" alt=""></span></p>
<p class="p1"><em><span class="s1">Source: <span class="s2">Public perceptions of foreign and Chinese real estate investment: intercultural relations in Global Sydney</span> </span></em></p>
<p class="p1"><span class="s1">Roughly one in three survey participants saw low interest rates (37 percent of respondents) and domestic home owners (32 percent) and investors (32 percent) as the drivers of higher housing prices. Local housing analysts <span class="s2">generally agree with this</span>.</span></p>
<p class="p1"><span class="s1">But more than three in four participants (78 percent) agreed with the statement:</span></p>
<p class="p2"><span class="s1"><em>Foreign investment is driving up housing prices in greater Sydney.</em></span></p>
<p class="p1"><span class="s1">When framed inversely, as “Foreign investment has no impact or very small impact on greater Sydney’s housing market”, more than two-thirds of participants (68 percent) disagreed with the statement.</span></p>
<p class="p1"><span class="s1">Only 6 percent of our participants disagreed that foreign investment was increasing real estate prices. Around 11 percent agreed that foreign investment had no or minimal impact.</span></p>
<p class="p3"><span class="s1"><strong>Views on housing supply and affordability</strong></span></p>
<p class="p1"><span class="s1">We expected people to report that foreign people and capital are driving up housing prices and making it more difficult for Australians to compete in the housing market. But we were surprised by the findings about Sydneysiders’ views on foreign capital and housing supply.</span></p>
<p class="p1"><span class="s1">A <span class="s2">strong message</span> from the real estate and property development industries is that foreign investment increases housing supply, which in turn puts downward pressure on prices.</span></p>
<p class="p1"><span class="s2">Politicians</span><span class="s1"> and <span class="s2">lobby groups</span> argue this will help improve housing affordability in major Australian cities. But many housing analysts argue that this supply solution <span class="s2">does not stack up</span> for purchases made by either <span class="s2">foreign</span> or <span class="s2">domestic investors</span>.</span></p>
<p class="p1"><span class="s1">It seems that Sydneysiders don’t accept the real estate industry message about foreign investors increasing housing supply, and therefore helping to ease housing affordability pressures.</span></p>
<p class="p1"><span class="s1">When asked if “Foreign investment can help increase housing supply in greater Sydney”, 48% of participants disagreed with the statement. Another 25% “neither disagreed or agreed”.</span></p>
<p class="p3"><span class="s1"><strong>An unresolved policy dilemma</strong></span></p>
<p class="p1"><span class="s1">The government’s dilemma is how to manage foreign investment alongside an increasing housing affordability problem in major Australian cities.</span></p>
<p class="p1"><span class="s1">This month’s federal budget included a crackdown on foreign investors, but the government still supports foreign real estate investment.</span></p>
<p class="p1"><span class="s1">Our survey results support <span class="s2">other studies</span> that suggest this pro-foreign investment stance must be accompanied by strategies to protect intercultural community relations. This must happen alongside efforts to improve housing affordability.</span></p>
<p class="p1"><span style="font-size: 12.16px;"> </span></p>
<p><em><span class="s1" style="font-size: 12.16px;"><span class="s2"><strong><a href="https://theconversation.com/profiles/dallas-rogers-5269" target="_blank"></a></strong></span></span></em></p>
<p><a href="https://theconversation.com/profiles/dallas-rogers-5269" target="_blank">Dallas Rogers</a> is Senior Lecturer, Faculty of Architecture, Design and Planning, University of Sydney.</p>
<p><em><span class="s1" style="font-size: 12.16px;"><span class="s2"><strong><a href="https://theconversation.com/profiles/dallas-rogers-5269" target="_blank"></a></strong></span></span></em></p>
<p><a href="https://theconversation.com/profiles/alexandra-wong-378393" target="_blank">Alexandra Wong </a>is Engaged Research Fellow, Institute for Culture and Society, Western Sydney University.<br><br><a href="https://theconversation.com/profiles/jacqueline-nelson-134741" target="_blank">Jacqueline Nelson</a> is Chancellor's Postdoctoral Research Fellow, University of Technology Sydney.</p>
<p><em><span class="s1" style="font-size: 12.16px;"><span class="s2"><strong><a href="https://theconversation.com/profiles/dallas-rogers-5269" target="_blank"></a></strong></span></span></em></p>
<p>All are authors for The Conversation.</p>
<p><em><span class="s1" style="font-size: 12.16px;"><span class="s2"><strong><a href="https://theconversation.com/profiles/dallas-rogers-5269" target="_blank"> </a></strong></span></span></em></p>
<p class="p1"><span class="s1"><span class="s2"> </span></span></p>
</body></html>

Sydneysiders blame foreign investors for high housing prices – survey

<html><body>
<p>GUEST OBSERVER</p>
<p>It doesn’t take much to comprehend how many residential apartments are being constructed across south-east Queensland. </p>
<p>There are a huge number that will be crying out for buyers over the next couple of years and, despite the fact some of these buyers are sure to be investors from either interstate or offshore, the Palaszczuk Government has introduced a 3 percent stamp duty charge for foreign buyers looking to invest in the state.</p>
<p>New South Wales and Victoria have both introduced the same surcharge in recent months, which gave Queensland a fantastic opportunity to stand out in the crowded Australian property market.  Had Queensland bucked the trend, foreign investment in the Sunshine State would undoubtedly have increased.  </p>
<p>Attractiveness is key for Queensland. The number of residential apartments set to come online over the next 12 months means the state needs a point of difference. Currently, it still imposes duty on a number of things that other states do not, which, put simply, makes it a less desirable jurisdiction to set up business. </p>
<p>Instead of imposing a foreign investor surcharge, Queensland could have presented itself as one of the few jurisdictions that does not impose a foreign investor surcharge and used that to attract foreign investment, leveraging its point of difference to other states.</p>
<p>New South Wales set a fantastic example in its June budget, proving there are ways to counteract the introduction of this surcharge. </p>
<p>Treasurer Gladys Berejiklian announced a 4 percent foreign investor surcharge on purchases of residential properties; this is a greater charge than the Palaszczuk Government’s 3 percent. </p>
<p>However, Ms Berejiklian also announced the duty on transfers of business assets will be abolished. The Palaszczuk Government chose not to abolish this duty.  </p>
<p>This decision makes the foreign investor surcharge in New South Wales far more palatable. Even if New South Wales does see a decline in foreign investment it will be countered by the new businesses setting up shop. </p>
<p>Compare that with Queensland, which has kept both charges, and the state is becoming less attractive a jurisdiction for either business or foreign investment when pitted against a state like New South Wales. This demonstrates that for businesses and investors it is really about the overall tax mix, not just changes to individual taxes. Getting the mix right is crucial to ensuring ongoing investment to drive growth.</p>
<p>While ’foreign investment’ can be a scary term for some to digest, the reality is it’s a completely viable and logical way to handle any oversupply in the residential property market which, based on recent advice, appears to be a real possibility.</p>
<p>But it’s not all doom and gloom. Queensland can take solace that regardless of any other duties or charges, it still has a lower charge for foreign investors than New South Wales’s 4 percent and Victoria’s 7 percent. This, coupled with Queensland’s more competitive house prices, should hopefully minimise the impact of the surcharge on foreign investment in Queensland.</p>
<div>
<p><em>Hung Tran <em>is private clients partner with BDO Brisbane and </em></em><em>Leisa Rafter <em>is tax partner. They can be contacted <a href="https://www.bdo.com.au/en-au/brisbane" target="_blank">here</a>.</em></em></p>
</div>
</body></html>

Property 101: QLD foreign buyers surcharge

<html><body>
<p>GUEST OBSERVER</p>
<p>As well as restricting supply to an already full rental market, the 50 percent foreign ownership restriction removes some of the competitive advantages overseas developers had over local developers.</p>
<p>Prior to this change coming into effect, overseas developers had a competitive advantage as they had no overseas sales limits whatsoever. Overseas developers using overseas banks could, if they so desired, have 100 percent foreign sales, with 100 pe cent en masse sales occurring overseas.</p>
<p>What Scott Morrison has done is even the playing field between local and overseas developers, with overseas developers now forced to generally work within the same FIRB sales metrics as local developers.</p>
<p>To commence a development, local banks require local developers to presell approximately 70 percent of the apartments in a development and impose a 25 percent Foreign Investment Review Board (FIRB) restriction on these presales. This means local developers require 52 percent local sales prior to construction commencing.</p>
<p>Once the developer has achieved financial close with a local bank, they are free to sell the rest overseas. Meaning, under a 25 per cent FIRB presales limit, local developers using local banks can develop buildings with circa 48 per cent foreign ownership.</p>
<p>Banks are always looking at the FIRB presales limit and whilst many current developments are at 25 percent, there is a more recent bank trend to constrict this further – more in the realm of 15 percent. If this is the case, then locally banked projects can end up with 40 percent foreign ownership.</p>
<p>It is also fair to say that overseas purchasers have settled better than local sales. Many pundits were nervous about large buildings settling this year, yet what we are seeing is that very few overseas purchasers are falling through when it comes to quality developments (just 1-2 percent in fact), even against Australian Prudential Regulation Authority’s (APRA) headwinds of overseas purchaser mortgage finance.</p>
<p>With the 50 percent FIRB restriction placed across the whole market, coupled with APRA’s new powers across non-bank lenders, it means that the metrics by which local and overseas developers, local and overseas banks, and local and overseas non-bank lenders are becoming converged.</p>
<p>As a flow on effect of the overseas sales metrics now being similar, this policy change will result in overseas developers using local banks and non-bank lenders more readily to avoid foreign exchange risk, again levelling the playing field.</p>
<p>Perhaps this new measure may even narrow the gap between what an overseas and local developer can pay for a site, which sets the market and ultimately gets passed onto the (local) consumer.</p>
<p>As an unintended consequence however, this change will further constrict supply to rental markets, thus driving rental and housing prices further out of reach of local first home owners and owner occupiers. It is only state planning ministers that can affect real change by encouraging the supply side of the housing economic supply/demand pendulum.</p>
<p><em>Andrew Hogan is a managing director of Point Polaris. He can be contacted <a href="https://www.pointpolaris.com.au/" target="_blank">here</a>.</em></p>
</body></html>

How will the 50 percent foreign ownership limit affect developers? Andrew Hogan

<html><body>
<p><img src="https://counter.theconversation.edu.au/content/65092/count.gif" alt="The Conversation" width="1" height="1"></p>
<p>GUEST OBSERVER</p>
<p>Prime Minister Malcolm Turnbull recently said:</p>
<p>“China has more freedom to invest in Australia, indeed all foreigners have more freedom to invest in Australia, than almost any other country.”</p>
<p>But is this true? We asked two experts to discuss the evidence for and against this statement.</p>
<p>Gennadi Kazakevitch argues Turnbull is right given Australia’s ranking as a free and open market, while Jeffrey Wilson presents evidence to show Australia’s foreign investment regime has become much more closed in recent years.</p>
<p><strong>Gennadi Kazakevitch:</strong></p>
<p>I think Mr Turnbull is right.</p>
<p>One measure to support this is the well-established inter-country comparison of economic freedom regularly published by the Heritage Foundation and Wall Street Journal. This measure also looks specifically at foreign investment freedom.</p>
<p>The economic freedom measure ranks countries according to rule of law, government size, regulatory efficiency and – of most relevance to this discussion – market openness. This includes trade freedom, investment freedom, and financial freedom.</p>
<p>In terms of general economic freedom, Australia ranked fifth behind Hong Kong, Singapore, New Zealand, and Switzerland in 2016. Within the “Open Market” component of the index, Australia scores 80 out 100 for investment freedom, putting us among the most free of the 200 countries ranked.</p>
<p>To score a perfect 100, according to the index, a country would have to have no constraints on the flow of investment capital. Individuals and firms would be allowed to move their resources into and out of specific activities, both internally and across the country’s borders, without restriction.</p>
<p>Points are deducted for different sorts of freedom “imperfections”. For Australia, one “imperfection” is the regime of foreign investment reviewwhich requires government approval of investment amounts above a particular level. But Australia’s current review regime does not discriminate against China or indeed any other country.</p>
<p><strong>Jeffrey Wilson:</strong></p>
<p>Australia’s foreign investment regime is more open than many other countries. However, it also remains the case that it has become much more closed in recent years.</p>
<p>Since taking office in September 2013, the Liberal-National Coalition government has imposed several new barriers to foreign investment coming into Australia. These policies include:</p>
<ul>
<li>
<p>The introduction of fees for FIRB applications, and an expansion of the range of sanctions and fines applied to breaches.</p>
</li>
<li>
<p>Instituting new and very low FIRB screening thresholds for investment in the rural sector, including A$15 million for agricultural land and A$55 million for agribusinesses. The threshold had previously been A$255 million.</p>
</li>
<li>
<p>The establishment of a register of ownership of agricultural land. While this is ostensibly designed to “increase transparency”, Deputy Prime Minister Barnaby Joyce explained the intention was to produce a map that would allow people to “see who owns what”.</p>
</li>
<li>
<p>The appointment of two new FIRB Members – David Irvine and David Peever – in order to add further “national security expertise”to the board.</p>
</li>
<li>
<p>Extending the application of the Foreign Acquisitions and Takeovers Act (Cth, as amended) to infrastructure sales made by state governments.</p>
</li>
</ul>
<p>The LNP Coalition government has also rejected a number of foreign investment applications on controversial grounds:</p>
<ul>
<li>
<p>Archer Daniels Midland (US) takeover bid for GrainCorp, 2013. The former head of the FIRB has claimed the deal was killed for political reasons.</p>
</li>
<li>
<p>Dakang Holdings and Pengxin Group (China) bids for Kidman cattle properties, 2016. The bidders appear to have been rejected simply because no Australian buyer made a competitive offer.</p>
</li>
<li>
<p>China State Grid bid for Ausgrid in NSW privatisation program, 2016. Treasurer Scott Morrison refused to explain the full reasons for the rejection, citing national security and confidentiality concerns.</p>
</li>
</ul>
<p>Tellingly, in its entire six-year term in office, the Rudd/Gillard ALP governments rejected only a single large foreign investment application: A bid by the Shanghai Stock Exchange to acquire the ASX in 2011.</p>
<p>As a result of these policy changes and investment decisions, the Australian foreign investment regime is now less open than it has been for over 20 years.</p>
<p>The prime minister’s claim was about the freedom of Chinese companies to make foreign investments into Australia. Unfortunately, there is no quantifiable metric that measures the openness of a country’s foreign investment regime specifically. The Economic Freedom statistics Gennadi cites are instead a broader measure of economic openness and transparency. Thus, they cannot be used to evaluate the prime minister’s claim.</p>
<p><strong>Gennadi Kazakevitch:</strong></p>
<p>The investment freedom component of the economic freedom index is not a perfect measure, but it is sophisticated. It allows for comparing “apples with apples” based on eight qualitative characteristics: national treatment of foreign investments; transparency; policy implementation; restrictions on land ownership; sectoral restrictions; expropriation of investments without fair compensation; foreign exchange controls; and capital controls. For each of those characteristics, there is a breakdown into several levels of restrictions, rules or practices.</p>
<p>It is true that in the most resent years (2012-2016) the investment freedom score for Australia has decreased from 83.7 to 80. But it is also true that Australia remains within a cluster of free economies.</p>
<p>It would be easy to attribute the decline in Australia’s score to the recent changes to regulation rules and practices. However, those changes have not critically affected the investment freedom index for Australia, nor are they discriminatory against a particular country. Therefore, Mr Turnbull’s statement is quite justified.</p>
<p>The six years of Rudd/Gillard ALP governments Jeffrey is referring to was business as usual as far as foreign investment was concerned. However, it is not business as usual any anymore. The most recent cases, such as the Port of Darwin, the Kidman station, and the Ausgrid power transmission business in NSW, have alerted the government and public to national security issues, and rightfully so.</p>
<p>As I proposed in my submission to the Senate inquiry on the foreign investment review framework, the world has changed dramatically since the current regulation was established in 1975.</p>
<p>Until the late 1980s, Australia’s investing partners were mostly persons and companies from developed market economies with similar values and similar foreign investment perceptions of independent entrepreneurship. Economic transition in communist countries, market reforms in one-party controlled countries, and emerging developing market economies have created a variety of economic systems with very different sovereign involvement in running economies and companies. Therefore a “foreign interest independence test” and security risk assessment should be done that takes into account which country the foreign investor is from.</p>
<p>If Australia eventually goes down this path, freedom of investment might be further compromised. If so it will arguably be for a good reason.</p>
<p><strong>Jeffrey Wilson:</strong></p>
<p>It is certainly true Australia’s foreign investment partners have changed many times through history. Prior to the 1950s the main foreign investor was Great Britain, which remains a major investor to this date. But progressive waves of new investors have also arrived: America during the 1960s; Japan in the 1970s; Singapore and Hong Kong in the 1990s; and more recently Chinese investors since 2005.</p>
<p>The arrival of each of these groups has presented Australia with distinct political tension. American investors faced accusations of “neo-imperialism” and threats to Australia’s independence in the world. Japanese investors faced considerable xenophobia, particularly as a result of “war memories”. And today, we are dealing with the fact that many Chinese investors are state-owned corporations, which pose their own unique political and regulatory challenges.</p>
<p>However, these are arguably issues to be managed rather than reasons to reject foreign investment. Australia is a small open economy, which depends on foreign investment to bring in the capital, technology, skills and marketing channels critical for 21st century industries.</p>
<p>In each previous wave, Australian governments have had to devise novel solutions for how to remain open to foreign investment, while managing their distinct political sensitivities. This has been successful in previous years, and there is no reason it should not be possible with Chinese investors today.</p>
<p><em><span class="fn author-name">Jeffrey Wilson is f</span>ellow of the Asia Research Centre, Murdoch University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/jeffrey-wilson-12717" target="_blank">here</a>.</em><br><br><em><span class="fn author-name">Gennadi Kazakevitch d</span>eputy head, Department of Economics, Monash University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/gennadi-kazakevitch-90201" target="_blank">here</a>.</em></p>
</body></html>

Do foreigners have more freedom to invest in Australia than in almost any other country?

<html><body>
<p class="caption">GUEST OBSERVER</p>
<p>The announcement by NSW Labor that in government they would lift surcharges for foreign investors on residential homes will slow down the supply of new homes.</p>
<p>Sydney needs more housing supply not less.</p>
<p>So Labor’s proposal to lift the stamp duty surcharge from 4 percent to 7 percent and to double the Land Tax surcharge for foreign investors will be a clear signal that these investors are not wanted. The result will be to minimise this sector of the market and to therefore reduce housing supply.</p>
<p>The Urban Taskforce believes that increasing supply is the key game changer that is needed to help with housing affordability and that this can be done by speeding up housing planning approvals and by minimising extra costs being put on developers by councils and state government agencies.</p>
<p>We recently asked our developer members for examples of where housing projects were stuck in the planning system and were surprised to get a list adding up to around 40,000 new homes that were in limbo.</p>
<p>These projects need to be speeded up to lift housing supply for Sydney. The Department of Planning says an average of 36,000 new homes a year is needed in Sydney over 20 years so in boom times we should be over 40,000 new homes a year. The best performance to-date has been 34,000 so clearly Sydney needs many more new homes.</p>
<p>It is concerning that in the media release by NSW Labor, Shadow Treasurer Ryan Park refers in a negative way to ‘developer mates’. The only industry that is going to provide the massive number of new homes needed for Sydney is the developers but they have to battle a slow and complex planning system and manage as a result holding costs that can reach $500,000 a month for large projects.</p>
<p>The Urban Taskforce is keen to be involved with all political parties in discussions on housing supply and affordability in a positive and constructive manner.</p>
<p><em>Chris Johnson is chief executive officer of property development industry group Urban Taskforce and can be contacted <a href="https://www.urbantaskforce.com.au/index.php?option=com_content&amp;view=article&amp;id=97&amp;Itemid=126#.Vdaart55dFI" target="_blank">here</a>.</em></p>
</body></html>

NSW Labor housing proposals will slow supply: Chris Johnson

<html><body><div class="content">
<div id="bodyContainer" class="col-12">
<div id="contentPage" class="article">
<div class="webArticle">
<div id="pnlSectionWrapper" class="section">
<div class="page tpl-a">
<div class="row-1">
<div class="col-12 col-first col-last box-1x1">
<p><span>GUEST OBSERVER</span></p>
<p><span>The Foreign Investment Review Board (FIRB) annual report includes updated figures on approvals of foreign purchases of Australian residential real estate. </span></p>
<p><span>The data is annual, dated and has been heavily criticised in the past as an inaccurate measure of the true level of foreign real estate purchases in Australia. </span></p>
<p><span>However, it is essentially the only information on the topic with any sort of consistent back history and is therefore a rare clue as to the size, growth and composition of demand from this segment.</span></p>
<p><a href="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.00.54%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.00.54%20AM.png" alt=""></span></p>
<p>For 2014-15, the aggregate figures show:</p>
<p><span style="line-height: 1.3em;">36.8k approvals for residential real estate purchases totalling $57.9bn, equivalent to 7.3% of total sales by number and 15.5% by value (note that the treatment of ‘developer off the plan’ approvals means this likely understates the number of properties purchased but overstates the value)</span></p>
<p><span style="line-height: 1.3em;">FIRB approvals are up 60-65% on 2013-14, very strong growth but slower than the 98% gain – i.e. doubling – in the previous year and the 150%+ surge in 2010-11.<br></span></p>
<p><a href="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.02.35%20AM.png" target="_blank"><span style="line-height: 1.3em;">Click to enlarge</span></a></p>
<p><span style="line-height: 1.3em;"><img src="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.02.35%20AM.png" alt=""></span></p>
<p>The FIRB figures are lower but in the same ‘ballpark’ as the other main estimate of foreign buyer demand – the NAB property survey, respondents to which have put the proportion of foreign demand for residential real estate at around 5% for existing and 15% for newly built dwellings.</p>
<p><a href="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.05.38%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.05.38%20AM.png" alt=""></p>
<p>The state breakdown of FIRB approvals shows:</p>
<p><span style="line-height: 1.3em;">Vic continues to be the dominant location for properties being purchased by foreign buyers – approvals imply foreign buyers accounted for around 14% of total sales by number and over 30% by value, the latter up 80%yr.</span></p>
<p><span style="line-height: 1.3em;">Qld saw particularly strong growth in 2014-15, the value of FIRB approvals jumping 180%yr, but is still a small share overall – 17% compared to NSW and Vic which combined accounted for 77% of FIRB approvals (by value).</span></p>
<p><a href="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.07.53%20AM.png" target="_blank"><span style="line-height: 1.3em;">Click to enlarge</span></a></p>
<p><span style="line-height: 1.3em;"><img src="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.07.53%20AM.png" alt=""></span></p>
<p>More recent market data shows a sharp slowdown in turnover since mid-2015. With the number of domestic owner-occupier finance approvals rising over this period, other segments are clearly driving the slowdown. While lower domestic investor activity may be the main factor, some slowing in foreign buyer activity may also be contributing. </p>
<p><a href="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.09.10%20AM.png" target="_blank"><span style="line-height: 1.3em;">Click to enlarge</span></a></p>
<p><span style="line-height: 1.3em;"><img src="/images/2016/04/11/Screen%20Shot%202016-04-12%20at%208.09.10%20AM.png" alt="" width="1606" height="1084"></span></p>
<p><em><span>Matthew Hassan</span> is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></p>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div></body></html>

FIRB residential approvals: Westpac's Matthew Hassan

<html><body>
<div>It's almost becoming an annual tradition that the Treasury scrambles until 4.59pm on a Friday before pinging out the Foreign Investment Review Board (FIRB) Annual Report and nipping off for a few cold ones.</div>
<div> </div>
<div>And this year the finance team surely did not disappoint scrimmaging until mere moments before "schooner o'clock" on Friday before delivering the goods!</div>
<div> </div>
<div>Broadly as expected total foreign investment in Australia was very strong in FY2015, increasing by +16.3 percent to $194.6 billion, with real estate (both commercial and residential) the largest sector at $97 billion.</div>
<div> </div>
<div>The total number of real estate approvals increased from 23,428 to 37,347 in FY2015, mainly for new dwellings.</div>
<div> </div>
<div>Real estate approvals have more than tripled in only two years. Bazinga. </div>
<p><a href="/images/2016/04/11/FIRB1.jpg" target="_blank"> Click to enlarge</a></p>
<div class="separator"><img src="/images/2016/04/11/FIRB1.jpg" alt=""></div>
<p> </p>
<div>Proposed investment in real estate soared to $96.9 billion, incorporating $36.2 billion of commercial real estate proposals.</div>
<p><a href="/images/2016/04/11/FIRB2.jpg" target="_blank"> Click to enlarge</a></p>
<div class="separator"><img src="/images/2016/04/11/FIRB2.jpg" alt=""></div>
<p><br><strong><span style="text-decoration: underline;">Foreign investment in residential real estate</span></strong></p>
<div>Proposed foreign investment in residential real estate ripped from $34.7 billion in FY2014 to $60.8 billion in FY2015, a level that could even not have been imagined only two years earlier.<span style="line-height: 1.3em;"> </span>
</div>
<div class="separator"> </div>
<div class="separator"><a href="/images/2016/04/11/A1.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"> </div>
<div class="separator"><img src="/images/2016/04/11/A1.jpg" alt=""></div>
<div class="separator"> </div>
<div>No proposals were rejected in FY2015 following three rejections in the preceding year, although 40 percent of approvals were granted with conditions attached, such as time periods for development or the requirement for temporary residents to sell should they depart Australia (approvals are filtered by specific questions, and therefore are to a large degree self-selecting).</div>
<div> </div>
<div>One divestment order was made in May 2015 by the FIRB, with an established $39 million residential Sydney property having been purchased illegally by a foreign company.</div>
<div> </div>
<div>Thereafter in May last year responsibility for divestment orders was assumed by the Australian Taxation Office (ATO), and a further 26 divestment orders were actioned.</div>
<div> </div>
<div>There was a massive 60 percent increase in the number of residential real estate approvals, with about 80 percent of those approvals for purchases of under $1 million in value (i.e. apartments).</div>
<div> </div>
<div>The bulk of this monster increase in foreign investment related to new real estate, including developer off the plan purchases, meaning that in aggregate foreign investors accounted for nearly 60 percent of all new residential construction.</div>
<div> </div>
<div class="separator"><a href="/images/2016/04/11/A2.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/04/11/A2.jpg" alt=""></div>
<div> </div>
<div><span><strong><span style="text-decoration: underline;">China's rise</span></strong></span></div>
<div> </div>
<div><span>The value of total FIRB approvals for China has increased by around 68 per cent since the prior year and accounted for around 33 per cent of the total value of approvals by foreign country in FY2015.</span></div>
<div> </div>
<div><span>Approvals for all Chinese investment in real estate, incorporating residential and commercial investment, all but doubled to $24.3 billion.</span></div>
<p><a href="/images/2016/04/11/FIRB4.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><img src="/images/2016/04/11/FIRB4.jpg" alt=""></div>
<div class="separator"> </div>
<div>Finally, Melbourne retained its crown as the king of foreign investment in terms of residential real estate, reflecting the huge volumes of residential construction in that city, with Sydney comfortably  bopped into second place.</div>
<div> </div>
<div>There was also enormous foreign investment in vacant land in Victoria at $3.4 billion, far exceeding the $1 billion seen in New South Wales, for example.</div>
<div> </div>
<div>The above having been said, Queensland saw far larger increases in foreign residential real estate investment in percentage terms.</div>
<p><a href="/images/2016/04/11/FIRB5.jpg" target="_blank"> Click to enlarge</a></p>
<div class="separator"><img src="/images/2016/04/11/FIRB5.jpg" alt=""></div>
<div> </div>
<div><strong><span style="text-decoration: underline;">The wrap</span></strong></div>
<div> </div>
<div>Foreign investment in Australian residential real estate is something of a double-edged sword.</div>
<div> </div>
<div>It is abundantly clear that foreign investors became more active in the purchase of new dwellings in FY2015, and monumentally so, with most of that foreign interest coming from China.</div>
<div> </div>
<div>Foreign investment has thus been a crucial factor in the strength of this residential construction boom, accounting for more than half of the investment in new dwellings, helping in turn to keep rental growth subdued.  </div>
<div> </div>
<div>On the flip side, foreign developers in Sydney have shown a willingness on occasion to pay prices for development opportunities far in excess of what locals are generally prepared to pay, putting significant upwards pressure on land values.</div>
<div> </div>
<div>Whether this can level of investment in new dwellings can be sustained is less clear as the residential construction cycle passes its peak imminently.</div>
<div> </div>
<div>Clearly there is vast foreign interest in Australian property from China, and it seems reasonable to me to suggest that any holes in the FIRB Annual Report are likely to be errors of omission rather than errors of commission.</div>
<div> </div>
<div>As such, the above information acts as a useful indicator, but it may not be complete.</div>
<div> </div>
<div>With immigration now rising again, the share of overseas born Aussies at a 120 year high, and as the number of international students in Australia skyrockets, the potential pathways for foreign capital to ultimately find its way into established residential property markets are multiplying, particularly in the largest capital cities.<br><br>A final thought or question for you - what percentage share of these new apartments bought by investors from the Chinese mainland ever make it to the local rental market?</div>
<div> </div>
<div>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
</div>
</body></html>

pwargent-M4siyDbqQY

FIRB real estate approvals triple in two years: Pete Wargent

<html><body>
<p>The least understood, worst reported and most unfairly treated issue in residential real estate is foreign investment.</p>
<p>The degree to which a patchwork of half-truths, empty rhetoric and outright lies has come to be accepted by almost everyone as truth is quite startling.</p>
<p>All forms of investment in real estate have become demonized amid the increasingly hysterical “debate” about housing affordability, but especially foreign investment. </p>
<p>Politicians’ handling of the affordability issue has been taken directly from the Yes Minister playbook. The iconic British comedy series has provided the scripts for federal and state politicians seeking a convenient scapegoat for the affordability issue – someone they can attack to give the appearance they care, without costing votes. </p>
<p>Overseas investors are the perfect target because they are seen as filthy rich foreign bastards, so everyone dislikes them or at least envies them, and they don’t vote in Australian elections.</p>
<p>After two long and pointless federal parliamentary inquiries into housing affordability, the Federal Government decided to blame it all on foreign investors. This provided lots of opportunities for sabre-ratting and righteous speech-making, followed by a big clampdown on foreign buyers who break the rules. </p>
<p>State Governments seized the opportunity to not only blame foreign investors for high prices but also to extract still more revenue from the property investment sector by slapping extra taxes and other imposts on the dastardly foreigners. Media, of course, has lapped it up.</p>
<p>So thoroughly have foreign buyers been demonized that a recent public opinion survey found that most people blame foreign investors for rising property prices. Even in Perth, where house prices have been falling for four years, half of respondents claim foreigners are forcing their house prices to rise. That pretty much says it all.</p>
<p>The anecdotal evidence suggests that anyone who has bid at an auction in Sydney and Melbourne in recent years, and been out-gunned by someone of Asian appearance, has gone away complaining about foreign investors. They could be third generation Australians for all they know.</p>
<p>The NSW Government, which is more to blame for poor housing affordability than any other entity or group of individuals, has seized the opportunity to exploit the unpopularity of foreign investors by slugging them with further taxes, while claiming – rather remarkably - that it won’t affect the level of foreign buying in Sydney.</p>
<p>If that’s what they believe, then what’s the point of doing it? It’s a rhetorical questions – the answer, of course, is that it’s all about revenue-raising.</p>
<p>The mounting imposts on offshore buyers will deter them and that will cause high-rise projects to be cancelled, thereby reducing supply - one of the factors needed to improve affordability.</p>
<p>The craziest thing about the whole sorry issue is that foreign investors are such a small part of the overall buying market. The research indicates that offshore buyers account for less than 10 percent of residential sales. We’re being asked to believe that this tiny minority is somehow driving prices up everywhere, overpowering the more than 90 percent of buyers who are Australians. Are we really that weak and puny?</p>
<p>It’s likely suggesting that a Japanese sevens team with two players in the bin could defeat a 15-man Wallabies outfit.</p>
<p>Yet 54 percent of South Australians think foreigners are the greatest factor in forcing up property prices, even though prices have hardly moved in Adelaide; and 56 percent of Queenslanders have the same attitude, despite the absence of boom conditions in Brisbane.</p>
<p>Of course, it all depends how the survey is framed – also well-documented in the scripts of Yes Minister. Strange that this recent survey had little to say about negative gearing, another hugely-popular scapegoat. Seven out of 10 nationwide blame foreigners.</p>
<p>It shows, once again, how opinion surveys do little more than reflect the prevailing media view. Politicians and media keep telling the public that foreign buyers are forcing up prices - so that’s what most people think. It’s not as if the average citizen goes out and conducts their own research. They just believe what they read.</p>
<p>The proof that foreign buyers are unfairly blamed is this: both federal and state governments, as well as lenders, have been clamping down on foreign investment for the past two years. New taxes and charges have made it incredibly expensive for them to buy our real estate, while those who are deemed to have done the wrong thing have been forced to sell back the properties they acquired.</p>
<p>The level of foreign investment is falling significantly. But prices have continued to rise in Sydney and Melbourne.</p>
<p>Terry Ryder is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="mailto:%20%3Cscript%20type='text/javascript'%3E%20%3C!--%20var%20prefix%20=%20'ma'%20+%20'il'%20+%20'to';%20var%20path%20=%20'hr'%20+%20'ef'%20+%20'=';%20var%20addy38821%20=%20'ryder'%20+%20'@';%20addy38821%20=%20addy38821%20+%20'hotspotting'%20+%20'.'%20+%20'com'%20+%20'.'%20+%20'au';%20document.write('%3Ca%20'%20+%20path%20+%20'/''%20+%20prefix%20+%20':'%20+%20addy38821%20+%20'/'%3E');%20document.write(addy38821);%20document.write('%3C//a%3E');%20//--%3E/n%20%3C/script%3E%3Cscript%20type='text/javascript'" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a></p>
</body></html>

Foreign Investment

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Foreign Investment

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News