In the aftermath of the shock of the Brexit referendum, the question of flow-on effects on the Australian property industry is germane as we attempt to make sense of the uncertainties evident in mainstream media coverage.
The historical relationship that exists between the UK and Australia is taken for granted by many pundits as more controversial, emerging relationships with countries in Asia have dominated business reports in recent times. It is worth noting that even given the exponential growth in investment from China, according to the Department of Foreign affairs and Trade, the UK consistently places third or fourth amongst the largest source of total foreign direct investment in Australia. In 2014 the UK (12.7 per cent of total FDI) placed third behind the USA (23.7 per cent of total FDI) followed by the EU, Japan and ASEAN.
According to the ABS 2013-14 data on total stocks of foreign investment in Australia, the UK invested a total of $452.2 billion in Australia compared to the USA $758.2 billion, Belgium with $226.1 billion in investment and ASEAN with $96.8 billion. Of world investment into Australia by industry destination, after mining, manufacturing, finance and wholesale/retail trade, real estate activities comprised 6.9 per cent of the total, amounting to $47.7 billion.
Foreign Investment Review Board (FIRB) data serves as another guide as to the investment prominence of the UK and its importance to the Australian real estate market. The FIRB only measures proposed, rather than actual direct investments above certain notification thresholds. These differ by country and type of investor. Of the new investments above the FIRB threshold, according to the FIRB 2014-15 Annual Report, real estate approvals accounted for 49.8 per cent of total investment, a percentage that has been steadily rising in recent years. Of this total, 18.6 per cent was commercial real estate and 31.2 per cent was residential. In terms of total value of real estate approvals by country of origin, whilst China is by far the leader with $24.3 billion, the UK is sixth with $2.063 billion in FIRB approvals.
In light of its prominence as a source of both total direct investment in Australia and more particularly of FIRB approved investment into real estate, I think it reasonable to expect a significant impact of Brexit on the Australian real estate market in the coming years. The question is whether the UK adaption to Brexit is positive or negative. It may be that direct foreign investment from the UK contracts as businesses reconsider their position, but another possibility that may be favourably considered by UK investors is to increasingly channel investment away from the EU and into alternative safe havens such as Australia. Only time will tell.