Foreign Investment

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<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>
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<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>
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<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>
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<div>The total number of real estate approvals increased from 23,428 to 37,347 in FY2015, mainly for new dwellings.</div>
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<div>Real estate approvals have more than tripled in only two years. Bazinga. </div>
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<div>Proposed investment in real estate soared to $96.9 billion, incorporating $36.2 billion of commercial real estate proposals.</div>
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<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>
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<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>
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<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>
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<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>
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<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>
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<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>
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<div><span><strong><span style="text-decoration: underline;">China's rise</span></strong></span></div>
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<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>
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<div><span>Approvals for all Chinese investment in real estate, incorporating residential and commercial investment, all but doubled to $24.3 billion.</span></div>
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<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>
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<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>
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<div>The above having been said, Queensland saw far larger increases in foreign residential real estate investment in percentage terms.</div>
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<div><strong><span style="text-decoration: underline;">The wrap</span></strong></div>
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<div>Foreign investment in Australian residential real estate is something of a double-edged sword.</div>
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<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>
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<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>
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<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>
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<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>
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<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>
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<div>As such, the above information acts as a useful indicator, but it may not be complete.</div>
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<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>
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<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>
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pwargent-M4siyDbqQY

FIRB real estate approvals triple in two years: Pete Wargent

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<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>
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terryryder-YECXbqmri2

Level of foreign investment is falling significantly as foreigners are demonized: Terry Ryder

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<p>GUEST OBSERVATION</p>
<p>A top fund manager for some of Australia’s most wealthy future Chinese citizens, Atlas Advisors Australia, is urging the Australian Government to improve the Significant Investor Visa industry regime to encourage greater investment into the nation.</p>
<p>Executive Chairman of Atlas Advisors Australia, Guy Hedley said he supported the Australian Government’s review of Investor visas and Significant Investor visas as part of its “Business Innovation and Investment Program: Getting a better deal for Australia” inquiry.</p>
<p>“The Federal Government is working hard to maximise the opportunities and benefits to Australia from the program,” Mr Hedley said.</p>
<p>“The best way to achieve this is through ongoing collaboration with key industry participants after the public consultation period for the inquiry closes on February 14.”</p>
<p>Mr Hedley urged the Australian Government to stay committed to the SIV program and to increase incentives for applicants. </p>
<p>“Tweaks to improve the system could include extending the significant investor visa period from four years to five years which would equate to a 20 per cent increase in economic benefit without changing the asset mix,” he said.</p>
<p>“Alternatively, investors riskier exposure to emerging companies and venture capital could be increased with a reduced visa period of three years rather than four years.”</p>
<p>Mr Hedley said it was critical to remember that SIV applicants were future citizens who were pouring millions into the Australian economy without any certainty about their applications.</p>
<p>“This is boosting local businesses and funding startups in important areas such as health and technology as well as lifting Australian exports, employment and international trade connections,” he said.</p>
<p>Atlas Advisors Australia manages the investments of many of the highest net worth Chinese investors into Australia with more than $1.7 billion of funds under management.</p>
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j.ballantyne1990-6AQqhLzZaK

Deadline looms on Significant Investor Visa reform: Atlas Advisors Guy Hedley

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<p>Foreign investor interest in Australia remains strong, the Foreign Investment Review Board (FIRB) chair David Irvine suggests.</p>
<p>But the latest FIRB report revealed a strong shift with the United States stepping up its investment in the 2017-18 period accompanied by declining Chinese investment easing into second place.</p>
<p>The United Kingdom, Singapore, Canada, the Netherlands and France make up the top seven.</p>
<p>The latest report on foreign investment showed the US recorded a $10 billion increase in approved investment to $36 billion in 2017-18, with significant increases in real estate and the manufacturing, electricity and gas sectors.  </p>
<p>China was the second largest source country with a $15 billion decrease in approved proposed investment to $23 billion.</p>
<p>The reduction in approved Chinese investment was due to falls across all investment sectors but especially property. Chinese proposed investment peaked at $47.3 billion in 2015–16.  </p>
<p>Chinese investment in real estate dropped to $12.7 billion in 2017-18 from $15.3 billion the year before, though still accounted for a quarter of foreign real estate investment.</p>
<p>Victoria gets the greatest share of Chinese residential investment with 46% of all approvals, with NSW in a distant second with 23% followed by Queensland's 17%.</p>
<p>The data doesn't track people who don't need to request approval, which means NSW might be actually getting more investment. </p>
<p>But it seems Melbourne retains advantages over Sydney in terms of prices and taxes. </p>
<p>Chinese buying is being impacted by several factors, local and international.</p>
<p>There's been the unexpected cancelling of promised mortgage loans by Australian banks, plus the higher foreign stamp duty taxes, along with Chinese government capital controls making it more difficult to move money from China, suggests Carrie Law, the boss of the Chinese property portal Juwai.</p>
<p>"We expect Chinese buying to be flat in 2019," Law thinks.</p>
<p>I don't think we ought regard the recent trend as permanent given tailwinds that will support Chinese buying including the still-strong Chinese wealth growth.</p>
<p>There is the desire to get a bargain while the market is soft. Plus, Law suggest there is a lack of investment opportunities in China, along with a possible shift in investment from the U.S. to Australia due to any emerging trade war.</p>
<p>Additionally the yuan’s weakness is not holding back investment in property as there is an advantage in currency rates in favour of Australia compared to other major countries. </p>
<p>The Chinese also lack appealing alternative investments at home.</p>
<p>Interestingly, the Federal Government's crackdown on residential properties held by foreigners in breach of the foreign investment rules uncovered just 131 now-sold illegally held properties in 2017-2018.</p>
<p>No nationalities were advised in the figure which was up slightly from the 96 ordered forced sales in 2016-17.</p>
<p>There were other breaches that did not see any forced divestment.</p>
<p>More than half the breaches identified were residential property in Victoria, while 20% related to property in New South Wales after the Australian Taxation Office (ATO) completed around 1,400 residential real estate investigations during the year.</p>
<p>ATO data matching analysis is increasingly important in compliance investigations. </p>
<p>Data matching made up 63% of the 1,700 cases investigated in 2017–18.</p>
<p>Although information received from the community is a source of intelligence, only a small proportion actually involved a breach of the Act.</p>
<p>The report noted that in most cases the owners of the properties reported by community members were found to be Australian citizens or permanent residents.</p>
<p>That suggests we might a little too quick to judge our new neighbours.</p>
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jchancellor-FAypfDUnLy

Australians are too suspicious of the nationality of our new neighbours

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<p>GUEST OBSERVATION</p>
<p>Former federal trade minister Andrew Robb says he has quit his A$880,000-a-year consultancy job with Chinese-owned Landbridge Group because <a href="https://www.smh.com.au/politics/federal/andrew-robb-quits-china-linked-firm-before-foreign-interference-law-kicks-in-20190219-p50yv0" target="_blank">it didn’t have anything</a> for him do.</p>
<p>Former Victorian premier John Brumby says he has quit as a director of Chinese tech giant Huawei in Australia because <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2019-02-01/former-victorian-premier-john-brumby-resigns-from-huawei-board/10772144" target="_blank">he has too much else</a> to do.</p>
<p>Former federal foreign minister and ex-NSW premier Bob Carr has quit his job as director of the Australia-China Relations Institute, <a href="https://theconversation.com/the-australia-china-relations-institute-doesnt-belong-at-uts-78743" target="_blank">an organisation bankrolled by a Chinese billionaire</a> with a history of using donations to cosy up to politicians.</p>
<p>It might be just a coincidence that these decisions have come just days before new foreign influence transparency laws come into effect on March 1.</p>
<p>The new laws are supposed to make visible the “<a href="https://www.ag.gov.au/Integrity/foreign-influence-transparency-scheme/Pages/default.aspx" target="_blank">nature, level and extent</a> of foreign influence on Australia’s government and political process”. There is more than enough evidence that greater transparency is needed. But the extent to which the new rules will achieve this is questionable.</p>
<p><strong>Money talks</strong></p>
<p>Federal parliament passed the Foreign Influence Transparency Scheme Act (FITS) in December. The Act obliges individuals to register if they act on behalf of “foreign principals” – be they governments, government-related entities, political organisations or government-related individuals.</p>
<p>Failing to apply for (or renew) registration, providing false and misleading information or destroying records may lead to a prison term of up to six years for individuals and fines of A$88,200 for companies.</p>
<p>Registrable activities include:</p>
<ul>
<li>parliamentary and political lobbying on behalf of a foreign principal</li>
<li>communications activities for the purpose of political or government influence</li>
<li>employment or activities of former cabinet ministers.</li>
</ul>
<p>An example of the latter is Andrew Robb.</p>
<p>In February 2016 Robb resigned as federal trade minister and announced he would not recontest his seat. He left parliament in July. Three months later he had his new job, getting paid <a href="https://www.smh.com.au/politics/federal/at-528-000-a-year-turnbull-s-pay-is-highest-of-any-leader-in-oecd-20180526-p4zhp5" target="_blank">way more than the prime minister</a> as a consultant to the Landbridge Group.</p>
<p>It is always instructive to note the first jobs taken by politicians after they leave parliament. Those appointments generally reflect relationships already well-groomed.</p>
<p>Landbridge is a privately owned Chinese company, but like many Chinese companies has strong ties to the ruling Chinese Communist Party. Its substantial interests in petrochemicals and ports includes a 99-year lease over the <a href="http://theconversation.com/darwin-ports-sale-is-a-blueprint-for-chinas-future-economic-expansion-108254" target="_blank">Darwin port</a>, which is considered of strategic importance in China’s diplomatic dance with the United States.</p>
<p><strong>Qualitative differences</strong></p>
<p>China isn’t the only foreign power interested in having influence in Australia, of course. Historical ties have meant that Britain once dictated Australia’s foreign policy. Since World War II the United States has had almost as much power.</p>
<p>Now China, Australia’s largest trading partner, taking <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/AustraliaTrade" target="_blank">about 30% of our exports</a>, looms large. But the power exercised by the Chinese regime is qualitatively different.</p>
<p>For all its economic liberalisation since the death of Mao Zedong in 1976, China remains a one party state, with repression worsening under Xi Jinping. On <a href="https://rsf.org/en/ranking" target="_blank">freedom of the press</a>, for example, China ranks 176 out of 180 countries.</p>
<p>Commercial, military and political influences are wrapped up together. Lines between state and private enterprises are blurred. When Chinese business interests curry favour with foreign politicians and officials, there’s a high chance that statecraft is also being advanced. <a href="https://theconversation.com/soft-power-goes-hard-chinas-economic-interest-in-the-pacific-comes-with-strings-attached-103765" target="_blank">“Soft power” is used extensively</a>.</p>
<p><strong>Agent of influence</strong></p>
<p>This is what made the tawdry scandal involving former NSW senator Sam Dastyari so alarming.</p>
<p>Though a humble senator, Dastyari was a key Labor Party fundraiser and powerbroker. He later admitted that <a href="https://www.theaustralian.com.au/national-affairs/dastyari-reveals-how-huang-xiangmo-courted-politicians/news-story/85c0592569a3d4583108b9a1cd64c13d" target="_blank">vanity and arrogance</a> made him susceptible to the charm offensive of Huang Xiangmo – the billionaire <a href="https://theconversation.com/the-australia-china-relations-institute-doesnt-belong-at-uts-78743" target="_blank">who courted Bob Carr</a> to head up the Australia-China Relations Institute.</p>
<p>Dastyari accepted financial gifts from Huang’s company, including a A$44,000 payment to settle a legal dispute, along with payments from other donors connected to the Chinese Communist Party.</p>
<p>Such payments made it obvious why he defied his own party’s policy and defended China’s militant stance in the <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2017-11-29/sam-dastyari-secret-south-china-sea-recordings/9198044" target="_blank">South China Sea</a>. He was subsequently labelled a Chinese “<a href="https://www.afr.com/news/politics/sam-dastyari-is-a-chinese-agent-of-influence-exintelligence-chief-20171203-gzxktb" target="_blank">agent of influence</a>”.</p>
<p>These revelations resulted in Dastyari resigning from parliament in 2017. Earlier this month it was revealed the federal government had rejected Huang’s bid to become an Australian citizen and stripped him of his <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/radio/programs/pm/australia-denies-citizenship-chinese-businessman-huang-xiangmo/10787052" target="_blank">permanent residency visa</a>.</p>
<p>On the basis of these examples highlighted above, there’s a strong case for making influence peddling open and transparent.</p>
<p>Whether the new laws can achieve that is another matter. They may curtail flagrant scenarios where those leaving public office sell their wares to the highest bidder. But to work effectively, the laws and their enforcers will need to constantly adapt and evolve as agents look for creative ways to wield influence from the shadows.<img src="https://counter.theconversation.com/content/112403/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;"></p>
<p><em><strong>John Garrick</strong>, Senior Lecturer, Business Law, Charles Darwin University</em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/agents-of-foreign-influence-with-china-its-a-blurry-line-between-corporate-and-state-interests-112403" target="_blank">original article</a>.</em></p>
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New laws can shine light on foreign influence, but agents will remain in the shadows

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<p>GUEST OBSERVATION</p>
<p>July 1 marked the 80th anniversary of Australia’s iron ore embargo against Japan. The official reason was resource conservation, but the ban was really driven by a fear of Japan – which had been buying up assets like iron ore and scrap metal – gaining a stronghold in Australia that threatened our sovereignty and security.</p>
<p>Despite the passing of 80 years, Australia is having the same discussions we had back in 1938, only this time about China.</p>
<p>China’s growing commercial influence in Australia and other Asia-Pacific countries has sparked concerns about its political ambitions. Responding to these concerns with economic sanctions is likely only to pander to US desires to curb Chinese influence, placing Australia’s economic future and regional security at risk.</p>
<p>The economic sanctions Japan faced in the 1930s and early 1940s contributed in large part to the outbreak of the Pacific War.</p>
<p>With the recent tit-for-tat US and Chinese trade restrictions, is the world heading down a similar path?</p>
<p><strong>What can we do differently this time around?</strong></p>
<p>Australia must recast its foreign policy with a view to the role it wishes to play in its immediate region. This needs to be a little more adventurous than the 2017 Foreign Policy White Paper.</p>
<p>The Australia of the 1930s faced a region in flux. There were territorial disputes, the waning power of Britain – Australia’s primary ally and protector – and the growing military and commercial weight of regional power Japan, whose intentions remained unclear. Sound familiar?</p>
<p>In early 1937, fears emerged of a world steel shortage. While iron ore restrictions were being introduced elsewhere, the Australian government maintained that it was not a lack of resources that had created a shortage but an inadequate output.</p>
<p>It came as quite a surprise then, in May 1938, when the Australian government announced an embargo on iron ore exports, effective July 1 1938. The government cited a (then) recent and very brief report, compiled by the Commonwealth government geological adviser, which concluded iron ore deposits were much smaller than had been estimated and perhaps would not meet domestic needs.</p>
<p>The embargo included existing agreements with foreign investors, such as the Japanese lease at the Yampi Sound mines in Western Australia, where preparations for the first iron ore extraction were well under way.</p>
<p>The government stressed that the embargo was not due to anti-Japanese sentiment. Nevertheless, this was the conclusion the Japanese government drew as it tried and failed to secure access to the Yampi Sound project.</p>
<p>The size of Australia’s current iron ore exports calls into question the logic of this report and the export ban it led to.</p>
<p><strong>A foreign foothold in Australian territory</strong></p>
<p>Throughout the 1930s, Japan pursued a policy of southward expansion, both territorial and economic in nature. At the centre of this policy was the need for resources to cater for Japan’s rapidly growing population. This involved the “economic penetration” of Far Eastern nations, investing Japanese capital to secure essential goods.</p>
<p>Australia, still recovering from the Great Depression, welcomed these investments.</p>
<p><img src="https://images.theconversation.com/files/223755/original/file-20180619-126534-53upal.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></p>
<p><em><span class="caption">‘Construct new Japan as Below’. Legend reads: Industrial Centre, Immigration Spheres, Expansion Spheres for White Races, Trade Expansion Spheres, Investment Expansion Spheres.</span> <span class="attribution"><span class="source">From the Collection of the National Archives of Australia, A601, 402/17/30.</span></span></em></p>
<p>Japan’s visions for territorial expansions became clear in July 1937. Japan – as Australia had long feared – proved itself an aggressor when its army invaded China, signalling the start of the Second Sino-Japanese War.</p>
<p>Australia opted for a diplomatic response to this conflict, remaining impartial and encouraging “cooperation and conciliation” as the solution.</p>
<p>However, Japanese economic investments were being viewed with increasing caution.</p>
<p>Australia’s trade commissioner in Tokyo, Eric E. Longfield Lloyd, reported that Japan’s territorial expansion into China had been aided by a seemingly innocent system of economic penetration throughout the 1920s and ’30s. He feared that allowing the Yampi Sound project to continue, operated as it was by Japanese staff, would result in a “foreign foothold” in Australian territory.</p>
<p><img src="https://images.theconversation.com/files/225423/original/file-20180629-117377-1iiilnu.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></p>
<p><em><span class="attribution"><span class="source">From the collections of the National Archives of Australia, A601, 402/17/30.</span></span></em></p>
<p>Longfield Lloyd pressed for the project’s cancellation “by any means whatsoever”. One proposal was was an export embargo “by declaration of insufficiency”.</p>
<p>Here was the origin of the 1938 iron ore embargo.</p>
<p><strong>Chequebook diplomacy</strong></p>
<p>Much like in 1938, today’s fears about Chinese investments hinge on the question of political influence and security implications.</p>
<p>These concern have led to the limiting of property investments and the banning of foreign political donations.</p>
<p>Further afield, China’s vast infrastructure program, the Belt and Road Initiative, has sparked speculation that the nation is using chequebook diplomacy – and perhaps debt-book diplomacy – to secure economic leverage and gain greater influence in regional and global affairs.</p>
<p>This is of particular concern in Australia’s immediate sphere of influence, Southeast Asia and the South Pacific.</p>
<p>Most recently, the Australian government sought to protect its diplomatic and security interests when it outbid the Chinese telecom giant Huawei for the rights to construct a network of internet cables linking the Solomon Islands to Sydney.</p>
<p><strong>Time for a long-range view of Australia and its foreign policy</strong></p>
<p>The economic pressure exerted on Japan in the 1930s and early 1940s – in which Australia was by no means alone, with the US and Britain leading the charge – deprived the nation of its means of survival. This hastened the campaign of aggressive regional conquest in pursuit of raw materials that eventually led to Pacific War.</p>
<p>To be sure, China’s current economic position makes it unlikely that trade sanctions will lead to armed conflict. But throw in territorial disputes, erratic leadership, the US-China struggle for Pacific dominance, and the future seems a lot less certain.</p>
<p>With all this in mind, the 1938 iron ore embargo does serve as a warning against over-reliance and a blinkered outlook that sees only potential dangers in our immediate region.</p>
<p>Now is the time for Australian to broaden its foreign relations, avoiding the potential downfall of over-reliance on the Chinese market and the US alliance, while building new diplomatic ties.</p>
<p>There is such an opportunity in Australia’s neighbourhood, “that part of the world”, as shadow defence minister Richard Marles recently argued: “in which our influence matters the greatest. What we say and do in the Pacific carries enormous weight.”</p>
<p>Australia must take the initiative in its immediate region to develop varied and mutually beneficial economic, diplomatic and strategic relationships.</p>
<p><img src="https://counter.theconversation.com/content/98387/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">In this way, Australia can strengthen its own economy, the economies nearby and its role as a regional leader and collaborator.</p>
<p><em><strong>Honae Cuffe</strong>, PhD Candidate, History, University of Newcastle</em></p>
<p><em>This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/fears-about-chinas-influence-are-a-rerun-of-attitudes-to-japan-80-years-ago-98387" target="_blank">original article</a>.</em></p>
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Fears about China's influence are a rerun of attitudes to Japan 80 years ago

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<p>EXPERT OBSERVATION</p>
<p>Debate around offshore investment in housing rose in May after data from the Foreign Investment Review Board (FIRB) showed an apparent collapse in investment.  Despite this, ANZ Research believes foreign buyers still have a sizeable presence in the Australian property sector. Here’s why.</p>
<p>According to the FIRB, the number of approvals granted for foreign purchasers to buy residential property in Australia fell by 67% in 2016-17. But this has largely been driven by the introduction of application fees.</p>
<p>“Foreign buyers still have a sizeable presence in the Australian property sector.”</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/19/ANZ1.jpg" alt=""></p>
<p>Other data suggest a much smaller decline in foreign buying than the FIRB data. The ANZ-Property Council Survey shows a sustained but gradual fall in the presence of foreign buyers since the peak about two years ago.</p>
<p><strong>Decline</strong></p>
<p>Nationwide, just 11,000 approvals were granted by FIRB in 2016-17, down from 40,000 the previous year. The scale of decline was similar across each of the states, with approvals in New South Wales, Victoria and Queensland all falling 65% to 70% year on year.</p>
<p>Victoria is still the most attractive market for foreign buyers on the basis of the FIRB data, recording 40% of all approvals, followed by New South Wales (30%) and Queensland (20%).</p>
<p>The FIRB believes “the most significant factor explaining this drop is the introduction of application fees in December 2015”. The fees mean from the end of 2015 onwards, it has been in the interest of potential foreign buyers to only apply for approval when they are likely to purchase.</p>
<p>Still, these data do not tell us how many approvals are converted into purchases of property. The headline FIRB data therefore do not tell us much about the actual activity of foreign buyers.</p>
<p><strong>Scale</strong></p>
<p>In order to assess movements in foreign-buyer activity, we refer to the quarterly ANZ-PCA survey.</p>
<p>Respondents report the share of property sales to foreign buyers has steadily declined from its peak around two years ago.</p>
<p>The June 2018 survey suggests nationwide 16% of property sales were to foreign buyers, down from 24% in September 2016.</p>
<p>New South Wales (16% down from 25%) and Victoria (21% down from 31%) report similar declines over the same period. </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/19/ANZ2.jpg" alt=""></p>
<p>That the presence of foreign buyers is declining is not surprising. The past couple of years have seen significant policy changes, including:</p>
<ul>
<li>tighter Chinese capital controls, such as limiting the outflow of foreign currency per person per year;</li>
<li>the introduction and subsequent raising of stamp duty surcharges on foreign purchasers across New South Wales, Victoria, Queensland and Western Australia;</li>
<li>vacancy tax on foreign-owned properties that are unavailable for rental for at least six months a year; and</li>
<li>a 50% cap on foreign ownership in new developments.</li>
</ul>
<p>These structural changes are likely to prevent foreign buyer activity rebounding to its previous peak.</p>
<p>Despite the fall in activity, foreign buyers continue to have an important presence in Australia, attracted by our solid economy and strong population growth.</p>
<p>When assessing these movements, ANZ Research places greater weight on the results of the ANZ-PCA Survey than the raw FIRB data.</p>
<p><em><strong>Daniel Gradwell</strong> is a Senior Economist at ANZ</em></p>
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jrobinson-rf4aSBido9

What the FIRB data really means: ANZ Research

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<p>GUEST OBSERVATION</p>
<p>Chinese direct investment in Australia has declined, according to a <a href="https://www.urban.com.au/property-observer" target="_blank">new report</a> by the University of Sydney and KPMG. In 2017, the value of investment fell by 11% in US dollar terms, from $11.5 billion in 2016 (A$15.4 billion) to $10.3 billion (A$13.3 billion).</p>
<p>In early 2018, we also surveyed nearly 50 Chinese executives in Australia. The responses show Chinese investors are feeling apprehensive and reluctant to engage in a climate of insecurity created by current debate about China’s role in Australia.</p>
<p>The investment drop occurred in nearly all areas of Chinese investment in Australia, including:</p>
<ul>
<li>commercial real estate, where investment was down 22%</li>
<li>infrastructure (-89%)</li>
<li>food and agribusiness (-8%)</li>
<li>renewable energy (-64%)</li>
<li>oil and gas (-84%).</li>
</ul>
<p>Growth occurred in mining and energy, with a 448% increase in investment, health care (20%), transport (2%) and smaller areas such as services and manufacture (38%).</p>
<p><iframe style="width: 0; min-width: 100% !important;" src="https://datawrapper.dwcdn.net/apBQJ/2/" frameborder="0" scrolling="no" width="100%" height="541"></iframe></p>
<p>The decline in Chinese investment does not come as a surprise. Chinese outbound investment in all countries was down 29% in 2017. Chinese investment in the United States fell by 35% and in the European Union by 17% after large increases in 2016.</p>
<p>Some of this is a result of actions by Chinese regulators since late 2016. They have targeted speculative “irrational” investment and capital flight, grouped outbound investment into three categories – prohibited, restricted and encouraged – and directly intervened in some high-profile international transactions. However, the new regulations and the curb on speculative investments only marginally affect Australia.</p>
<p>The more important news is Australia did not pick up increased Chinese investment in the encouraged industries, namely services, agriculture and infrastructure. These are areas where Australia has strong competitive advantages and is highly complementary to Chinese economic interests.</p>
<p>Combined Chinese investment in Australia’s agribusiness, infrastructure, renewable energy and services halved in 2017. Commercial real estate, the second-largest area behind mining in 2017, has fallen two years in a row.</p>
<p><iframe style="width: 0; min-width: 100% !important;" src="https://datawrapper.dwcdn.net/pUfi9/1/" frameborder="0" scrolling="no" width="100%" height="285"></iframe></p>
<p>The only two growth areas in the encouraged category were mining and health care. <a href="https://www.propertyobserver.com.au/http://www.abc.net.au/news/2018-06-06/lithium-booms-shows-no-sign-of-slowing-as-new-refinery-announced/9840914" target="_blank">Lithium mining</a> and <a href="https://www.australianmining.com.au/news/rio-tinto-waves-goodbye-coal-allied/" target="_blank">Yancoal’s A$3.4 billion acquisition of Rio Tinto’s thermal coal assets</a> boosted mining investment. Health-care investment rose by 20% with several large investments in health service providers and supplements.</p>
<p>Two structural trends have underpinned the decline in investment volume. First, private investors with smaller investment volumes are crowding out larger investments by state-owned enterprises. Second, investment by new entrants is declining in favour of repeat investors.</p>
<p>The report adds fuel to the debate about the Australian government’s political stance towards China and its impact on economic relations. If the intent was to slow down Chinese investment in Australia, this has been achieved.</p>
<p><strong>Feeling less welcome</strong></p>
<p>In our survey, more than half of our respondents either agreed (48%) or strongly agreed (4%) that they felt less welcome in Australia, compared to just over one-third (35%) of respondents in 2014.</p>
<p>Asked about the level of support from major stakeholders, Australian media received the lowest rating overall. Business leaders were seen as the most supportive group. State governments and local councils were also given positive ratings.</p>
<p>Local communities were seen as less supportive, ahead of the federal government. The Foreign Investment Review Board (FIRB) received the lowest government rating.</p>
<p>Two-thirds (67%) of respondents strongly agreed (17%) or agreed (50%) agreed that the federal government was less supportive of Chinese investment than previously. A slightly higher number (70%) stated that the political debate about China had made their company more cautious about investing in Australia.</p>
<p>Half of the respondents (52%) felt that Australia was a safer place to invest than many other countries, down from 63% in 2014. The majority view was in spite of problems such as higher business costs than in the United Kingdom, United States and Canada, difficulties in finding qualified staff, and communication issues with local staff and management.</p>
<p>The Chinese investors’ evaluation of business success over the past three years and the outlook for the year ahead confirms their overall positive attitude towards Australia. Growth in turnover and profitability was reported by 65% percent and 45% of respondents respectively.</p>
<p>For 2018, a similar number of respondents expect growth in turnover (64%) and profitability (42%). Half of the respondents (49%) expressed optimism about business prospects for the year ahead.</p>
<p><strong>Politics plays into business</strong></p>
<p>Personal interviews with a smaller number of local Chinese companies confirmed the prevailing feelings of insecurity and apprehension. Chinese investors discuss the political situation among each other and with head offices in China, which are concerned about negative reporting.</p>
<p>In the absence of positive signals from the federal government, larger investments by state-owned enterprises – in infrastructure building, for example – are unlikely to go ahead.</p>
<p>The report highlights the potential business implications of trying to separate business from politics in the relationship with China. Business co-operation between Australia and China is strategic rather than purely transactional. This means bilateral diplomatic relations have an important signalling function for long-term and large-scale investments.</p>
<p>Australia needs to build up supply chains and infrastructure to maintain its competitive advantage and to increase capacities in growing export industries such as agriculture and services. This in turn requires substantial investments.</p>
<p><img src="https://counter.theconversation.com/content/98144/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">So far, state governments and business are seen as supportive, but a more predictable diplomatic environment is indispensable for securing long-term strategic investment.</p>
<p><em><strong>Hans Hendrischke</strong>, Professor of Chinese Business and Management, University of Sydney</em></p>
<p><em><strong>Wei Li</strong>, Lecturer, Business School, University of Sydney</em></p>
<p><em>This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/chinese-investment-in-australia-falls-as-political-debate-hits-confidence-98144" target="_blank">original article</a>.</em></p>
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Chinese investment in Australia falls as political debate hits confidence

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<p>GUEST OBSERVATION</p>
<p>Australia’s Foreign Investment Review Board (FIRB) reported this week that foreign residential real estate approvals dropped significantly in the 2016-17 period.</p>
<p>Whereas 2015-16 saw 40,149 approvals granted, totalling A$72.4 billion, the figure for the following year was just 13,198 approvals, totalling A$25.2 billion. On these numbers, the foreign property investment boom looks to be over.</p>
<p><a href="https://images.theconversation.com/files/220901/original/file-20180530-120505-1nrqx6t.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/220901/original/file-20180530-120505-1nrqx6t.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a></p>
<p><em><span class="attribution"><span class="source">Source: FIRB</span></span></em></p>
<p>This is bad news for the property and financial industries, who are already feeling the pressure of weak household income growth, tighter lending restrictions on local borrowers, and a slowing in housing market activity in key Australian cities.</p>
<p>FIRB suggests that declining demand from China is a factor in the overall decline in overseas approvals. Chinese demand may have been weakened by a range of factors, including the new FIRB application fees, Chinese overseas direct investment capital controls, and the changing global economy.</p>
<p>But if the cycle is moving from boom towards bust, we have learned several things along the way.</p>
<p><strong>Lesson 1: We still need more data</strong></p>
<p>In 2014 the House of Representatives Standing Committee on Economics undertook an inquiry into foreign investment in residential real estate. It acknowledged the growing public disquiet about the level of this foreign investment, adding that:</p>
<p>"…there is no accurate or timely data that tracks foreign investment in residential real estate. No one really knows how much foreign investment there is in residential real estate, nor where that investment comes from."</p>
<p>Four years on, FIRB is still flagging the limitations of data collection and analysis. Without fine-grained data, it’s hard to forecast how much, if at all, the injection of foreign capital can push up local house prices.</p>
<p>The latest figures come with a caveat. The approvals data represent potential investment, rather than actual investment. There are key differences between the two. Potential investors might, for example, seek approval for multiple properties while only intending to buy one of them.</p>
<p>We need the government to collect more extensive and detailed data on individual foreign real estate investment, and make it publicly available. This needs to cover more than approvals data at the city level, but data on investment levels in neighbourhoods or even individual housing developments.</p>
<p><strong>Lesson 2: People on the property ladder are less hostile to foreign buyers</strong></p>
<p>Data from Sydney reveals widespread concern about foreign investment. Almost 56% of Sydneysiders believed foreign investors should not be allowed to buy residential real estate in Sydney. Only 17% of respondents in our study thought the government’s regulation of foreign housing investment was effective.</p>
<p>Just over half of Sydneysiders say they would not want Chinese investors buying properties in their suburb. And 78% thought foreign investment was driving up housing prices in greater Sydney.</p>
<p>Yet those who have real estate investments were more likely to support foreign investment than those who don’t. This suggests that Sydneysiders with equity in the housing market, such as homeowners or investors, might view foreign buyers pushing up housing values as positive. And they might fear that the new decline in foreign investment might depress their assets.</p>
<p><strong>Lesson 3: Housing is built with specific buyers in mind</strong></p>
<p>When Chinese real estate investment started to rise significantly in 2013-14, property developers scrambled to model this new emerging market. The real estate media rushed to map out where Chinese investors were keenest to buy, and how best to design and market property developments to this new foreign client base.</p>
<p>In early 2012, Larry Schlesinger <a href="https://www.urban.com.au/expert-insights/investing/15696-feng-shui-will-influence-the-direction-of-australias-property-markets-bernard-salt" target="_blank">quoted the demographer Bernard Salt</a> as saying: </p>
<p>"The growing numbers of Chinese and Indian migrants in Australia means property investors need to consider the cultural sensitivity of the residential property they purchase to ensure they maximise the resell value."</p>
<p>Between 2013 and 2017, property developers, both local and foreign, regularly contacted me to ask if I had any up-to-date research on foreign investors’ consumer preferences and market forecasts. I did not. But there was no shortage of advice out there, covering everything from feng shui-informed housing design to the key needs of foreign university students.</p>
<p>Some global real estate agents suggested to their clients that they could buy an Australian home to accommodate their child while they were studying at an Australian university, and then use the capital gain from the property sale to pay back the tuition fees.</p>
<p>Many property developers were formulating medium- to long-term development pipelines that included the foreign capital and consumer preferences of foreign investors. It is unclear, now, whether much of this housing stock will ever be built. If it is, will it suit the changing future needs of our cities, or address our ongoing housing affordability problems?</p>
<p>In other words, what sorts of properties will be left as the legacy of the recent foreign real estate investment mania?</p>
<p><strong>Lesson 4: Racialised housing debates are simplistic and harmful</strong></p>
<p>We need to take care not to conflate domestic Chinese-Australian buyers with international Chinese investors. Much of the media coverage of the new report features stereotyped images of Asian families buying an Australian home. But given the foreign investment rules and logistics involved, these pictures are far more likely to depict Chinese-Australians than foreigners.</p>
<p>Understanding the long-term migration and education plans of the investors is important too. Different investor groups will interact with the city in different ways, and their impact on society can be vastly different too. For example, super-rich absentee investors will have a different impact on neighbourhood life compared with that of middle-class migrants or international students.</p>
<p>If the federal government wants to court foreign investment, then better education about the possible risks and benefits of individual foreign real estate investment is needed. Our research suggests that the government’s pro-foreign investment stance must be accompanied with strategies to protect intercultural community relations in Australia.</p>
<p><strong>Lesson 5: The boom-bubble-bust cycle goes on</strong></p>
<p>In 1982, Maurice Daly wrote in his classic book Sydney Boom, Sydney Bust that the:</p>
<p>"…fluctuation in property prices recorded for Sydney have been caused by the forces linking the city to the Australian economy and to the remainder of the world."</p>
<p>Daly charted the influx of foreign people and capital into Sydney between 1850 until 1981, as wealth was channelled through the financial services sector and into urban real estate. Along the way, he observed that one “group to attract the abuse of the general population were the Chinese”.</p>
<p>Domestic and foreign real estate investment have long been connected to the financial services industries, and the built environment is central to creating and storing surplus capital. Australian cities continue to be heavily influenced by global money today.</p>
<p>A key lesson is that domestic and foreign housing booms, bubbles and busts are thus better understood as cycles within our housing and financial system, rather than as a set of short-term ruptures to this system.</p>
<p><img src="https://counter.theconversation.com/content/97460/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">We need to think about the collective impacts of domestic and foreign real estate investment over the long-term in our cities if we are serious about addressing housing inequality.</p>
<p><em><strong>Dallas Rogers</strong>, Program Director, Master of Urbanism. School of Architecture, Design and Planning, University of Sydney</em></p>
<p><em>This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/australias-foreign-real-estate-investment-boom-looks-to-be-over-here-are-five-things-we-learned-97460" target="_blank">original article</a>.</em></p>
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Five lessons from Australia's foreign real estate investment boom: Dallas Rogers

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<p>We are often asked about the rules around foreign investment and the impact that such investors have on the Australian housing market. While concrete data are hard to come by, we are able to combine existing data with informed assumptions to reveal some useful insights.</p>
<p>We build on recent work by Australia’s Reserve Bank (RBA) to estimate that foreign investors purchased between 35,000 and 60,000 dwellings in Australia in 2015-16. Foreign buyers seem to make up only a small share of total housing turnover for the year (7–13%), although the impact is more significant as a share of newly- constructed dwellings (15–25%) and in some states.</p>
<p>Using Foreign Investment Review Board (FIRB) data back to 1995-96, we estimate that foreigners own between 2.5% and 4% of Australia’s housing stock, plus anything purchased before that year. The size of this range reflects uncertainty about the extent to which foreign buyer approvals convert to actual purchases.</p>
<p>The sizeable foreign-buyer share of newly-constructed housing implies that foreign demand has been an important contributor to Australia’s recent construction boom. But the relatively lower share of total market activity suggests that foreign buyers have not been the primary driver of the price growth in recent years. That is not to say foreign buying has had no impact on prices.</p>
<p>The estimated 2.5–4% foreign ownership of Australia’s housing stock is significant, especially considering that the current rate of growth is much stronger than in the past. It is also not large enough for us to be particularly concerned about a foreign exodus from the Australian housing market.</p>
<p>We note that Revenue New South Wales has several times this year released data on the number and value of foreign purchasers that have been subjected to stamp duty surcharges. It would be helpful if other state governments released their suite of data on foreign buyers, which would assist in more concrete analysis around the impact of foreigners on Australia’s housing market.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2017/12/8/foreign_buyers1.jpg" target="_blank">to enlarge.<span style="font-size: 12.16px;"> </span></a></p>
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<p> </p>
<p>WHAT DO WE KNOW?</p>
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<p>In terms of the FIRB process, the key details are:</p>
<p>- Foreigners require FIRB approval to purchase new dwellings or vacant residential land. The vast majority of applications for new dwellings are approved without conditions. Applications to purchase vacant land are subject to construction being completed within four years, to prevent land banking.</p>
<p>- Contrary to relatively popular belief, foreigners can obtain approval to purchase existing dwellings. These applications are generally only approved subject to the purchaser increasing the stock of housing. For example, a knock down and rebuild where one existing dwelling is replaced with two or more townhouses or units.</p>
<p>- Temporary residents (such as students or people on working visas) are also required to obtain FIRB approval to purchase an existing dwelling. These purchasers are not permitted to lease out the property and are required to sell the property once they leave Australia.</p>
<p>Because all foreign buyers require this approval to purchase Australian property, the FIRB have data on the value and number of approvals granted. Note however, that this does not give us the number of approvals that were actioned.</p>
<p>The FIRB data tell us that in 2015-16, 40,100 property purchases by foreign buyers were approved, valued at AUD72.4bn. Each FIRB approval can be for more than one property, so the value figure is particularly important. Foreign purchases have risen sharply in recent years, led by Chinese purchasers; with the value of approvals granted in 2015-16 three and a half times greater than just five years ago.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2017/12/8/Foreign_buyers2.jpg" target="_blank">to enlarge.</a></p>
<p style="font-size: 12.16px;"><a href="https://www.propertyobserver.com.au/images/2017/12/8/Foreign_buyers2.jpg" target="_blank"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/12/8/Foreign_buyers2.jpg" alt=""></a></p>
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<p>QUANTIFYING THE IMPACT</p>
<p>The FIRB data tells us about approvals, not actual purchases. So, to calculate actual foreign buying, we need to make some assumptions about the rate at which approvals translate into purchases.</p>
<p>In doing so we need to be mindful that a fee for approvals was introduced in December 2015. This means that for half of 2015-16 and in all subsequent years, the ‘conversion rate’ from approvals to purchases is likely to be much higher, because potential buyers are unlikely to incur the application fee unless they are highly committed.</p>
<p>The FIRB approved $72.4bn of sales to foreign purchasers in 2015-16. To convert this into the number of transactions, we lean on recent estimates from the RBA, which noted that foreign buyers are purchasing around 10-15% of all new housing and around 25% of new apartments.</p>
<p>1. To line up our analysis with the RBA, we assume that 30–50% of approvals result in a property purchase.</p>
<p>2. If foreigners are purchasing around 25% of new apartments, this suggests around 80% of foreign purchases are apartments and the remaining 20% are houses. By applying this ratio to CoreLogic data on house and apartment/unit prices, we derive an average price of foreign purchases of $620,000 nationwide for 2015-16.</p>
<p>These conversion rates imply that foreign purchasers bought AUD22–35bn of Australian property in 2015-16. At the median price described above, this translates to the purchase of 35,000–60,000 dwellings nationwide.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2017/12/8/Foreign_buyers_3.jpg" target="_blank">to enlarge.</a></p>
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<p>That number can be broken down further to assess how many of these purchases were for new dwellings. We estimate that foreign buyers purchased 30,000–50,000 new dwellings in 2015-16, representing 15–25% of Australia’s new builds that year. In flow terms, therefore, the impact of foreign buyers on the new housing segment could be sizeable.</p>
<p>On our estimates, most of this foreign activity in new housing in 2015-16 seems to have been in Victoria. We estimate that foreigners purchased 13,000–20,000 new dwellings in Victoria, representing 25–35% of total new builds in the year. The market share seems to be higher in Queensland (25–45% of new dwellings) and lower in New South Wales (15–20%).</p>
<p>However, the impact of foreign buyers is less significant when we compare the level of purchasing against Australia’s total housing turnover.</p>
<p>In 2015-16, 465,000 dwellings were sold, meaning that foreign purchases of 35,000–60,000 dwellings accounted for only 7–13% of the market. Again, foreigners seem to be most active in Victoria (10–20% of sales) and Queensland (10– 15%), followed by New South Wales (5–10%).</p>
<p>The analysis can be extended back to the commencement of the FIRB data in 1995-96. Over the past 21 years (again assuming that 30–50% of FIRB approvals translate into purchases, and that foreigners have been buying 80% units and 20% houses), we find that foreign buyers have purchased an estimated 250,000–450,000 dwellings in Australia. As of the 2016 Census, Australia’s total stock of housing was 9.8 million dwellings. This means that foreigners could own approximately 2.5–4% of Australia’s housing stock.</p>
<p>This estimate is imperfect. It does not include properties bought before 1995-96, nor the subsequent sale of any properties previously held by foreign owners. Further, it is sensitive to the assumed 30-50% conversion rate from approvals to purchases, and the impact that the mix of houses and apartments would have on the average purchase price.</p>
<p>Assuming our estimate of 30-50% of purchases to approvals is near the mark, this yields a useful frame of reference when assessing the impact of foreign buyers of the Australian market. At 15–25% of new builds in 2015-16, foreign demand is clearly one of the drivers of the strength in our dwelling investment profile. If this demand were to dry up suddenly, Australia’s construction pipeline would likely be notably weaker than currently expected.</p>
<p>The impact of foreign demand on prices is less clear. The purchase of 7–13% of total sales each year is not as significant as the share of new construction. So the impact on overall prices is likely to be less than the impact on construction.</p>
<p>Another way of looking at this is in terms of the stock of housing, rather than the flow. As described above, we estimate that foreign owners hold 2.5–4% of Australia’s housing stock. Around 5% of Australia’s housing stock is bought and sold each year. This means that only a large shock, causing a high share of foreign owners to sell their Australian property, would be significant enough to drive sale prices lower.</p>
<p>WHAT OTHER ANALYSIS IS THERE?</p>
<p>The RBA recently noted that, “nationally, purchases by foreign buyers are equivalent to around 10–15 per cent of new construction, or about 5 per cent of total housing sales.” The RBA also suggests that the foreign buyer share of new construction purchases is higher for apartments, “but it is still only perhaps around one quarter of newly built apartments”. As described above, we have used these figures as a starting point for our analysis.</p>
<p>Revenue New South Wales has released details of purchases that incurred the foreign buyer stamp duty surcharge in 2016-17. The data show that just under 4,000 purchases incurred the stamp duty, generating AUD185m revenue for the state.</p>
<p>The first few months of data appear incomplete, so ignoring these and annualising the data suggest that around 5,000 properties are bought by foreign investors each year, at present. This is 4% of total turnover and 10% of new properties if no existing properties were purchased, which is consistent with our estimate of foreign buyer activity in New South Wales. But because stamp duty has only recently been introduced in New South Wales, we do not have a longer time series to investig<span style="font-size: 12.16px;">ate.</span></p>
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<p><span>Similar estimates are also found in the ANZ-Property Council survey. Survey respondents from the residential property sector (who are primarily developers and therefore focussed on newly-constructed dwellings) reported in the December quarter that 18% of property sales nationwide were to foreign buyers. New South Wales and Victoria topped the list at 22%, followed by Queensland with 15%. </span></p>
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<p><span>While the nationwide number in this survey is consistent with our estimates above, the estimate of foreign purchases of new builds in Queensland (at 15%) is much lower than our estimates (of 25</span><span>–</span><span>45%). </span></p>
<p><span>In contrast, the estimates for New South Wales and Victoria are broadly in line. As such, we think the portion of foreign purchases in Queensland is likely to sit at the lower end of our estimated range. </span></p>
<p><span>Treasury have also released work into the </span><span>impact of foreign investment on dwelling prices</span><span>. They found that foreign demand is responsible for only a small share of the strong property price growth between July 2010 and March 2015. Their modelling found that foreign buyers have pushed dwelling prices AUD80</span><span>–</span><span>122 higher per quarter, which is </span><span>“very small when compared with the average quarterly increase in Sydney and </span><span>Melbourne property prices over the period studied of around $12,800.</span><span>” </span></p>
<p><span>Keeping in mind the data imperfections and subsequent variety of estimates, the research tends to suggest that while the presence of foreign buyers has been rising strongly in recent years, they are likely to still be a small share of our total housing market. </span></p>
<p><span>It is our view that foreign buyers have supported dwelling investment through the current cycle, but have not been the main cause of the rapid price growth and are unlikely to be the cause of a sharp price correction. </span></p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2017/12/8/Foreign_buyers4.jpg" target="_blank">to enlarge.</a></p>
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