Is Foreign Investment Good for Australia? 3

Monday, March 16th, 2015
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Are foreign investors snapping up every available home on the market, driving up property prices and locking out first homebuyers from realising their Great Australian Dream, or is the real story a bit different?

Let’s look at the facts.

Temporary residents were granted approval to purchase less than 7,000 established dwellings in the last financial year – 1.5 per cent of the total number of properties bought and sold that year, and certainly not enough to have an impact on the market.

Australia’s foreign investment laws, second only to Switzerland in terms of stringency, mean that non-residents can buy newly built dwellings – after gaining approval from the Foreign Investment Review Board – but they cannot buy established homes.

This policy was designed to stimulate the construction of new housing and support the building industry and its lengthy supply chain. Essentially, foreign investment provides a pre-commitment that enables projects to get off the ground.

Foreign investors aren’t competing with first homebuyers. Data from the Australian Bureau of Statistics reveals that 80 per cent of first homebuyers purchase established homes. What’s more, the purchase price for FIRB approvals granted is close to the $1 million mark – not the territory of the average first homebuyer.

The biggest influence on house prices is housing supply. New home starts reached a record high last year, hitting 193,000 commencements. All the available evidence suggests that foreign buyers are supporting this growth. In fact, every new home that a foreign investor purchases enables up to four other homes to be built for Australians, and yet we still face housing shortages.

The federal government’s proposed changes to foreign investment rules, which would include fees of at least $5,000 per purchase levied on foreign buyers, along with tough new penalties, will make it harder for new residential development projects to get off the ground.

Consider the practicalities of this fee. Foreign investors at auction would be required to pay at least $5,000 for each property they sought approval on, regardless of whether they secured it or not. This will act as a significant disincentive.

The proposal is essentially a federal government ‘stamp duty’ for foreign buyers. Investors now face fees that amount to another upfront cost that may send them to other markets.

As a result, houses may become more expensive, making it even harder for first homebuyers to enter the market.

The property industry supports a modest registration fee to ensure the FIBR can do its job and enforce the rules. The solution is not to drive foreign investors away. The solution is to ensure our rules are enforced.

Everyone in our industry understands that housing is more than ‘shelter from the storm.’ Each new housing project provides work for around 40 trades, sub-trades and para professionals, boosting jobs, generating income for governments, and strengthening economies.

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  1. Andrew Heaton

    In an environment of persistent misinformation, common-sense arguments like these and a look at the plain cold hard facts have unfortunately become all too common.

    Unless they are flouting the rules, foreign investors purchasing newly built properties as opposed to existing properties are not competing with local buyers and first home buyers for existing stock. Existing rules should be enforced, but using foreign investors as a scapegoat for policy maker failure to do the hard yards and undertake the type of reforms needed to unblock new housing supply is of no use to those who are squeezed out of the market at the lower end.

  2. Jurgen S.

    Finally some common sense and concrete facts to counter the media-driven hysteria surrounding foreign investment in the property sector.

  3. Adam Shaw

    The answer is in the title of the article isn't it?
    INVESTMENT = good.