Debate over local and foreign property investors has been raging in Australia for some time. Some argue foreign investors are making housing unaffordable and pushing out first home buyers, while others claim foreign investment is good for business, helping to stimulate the economy.
Why Foreign Investors are Good for Business
There’s no denying it. Australian house prices are high and this is having a detrimental effect on potential new homeowners, forcing some of them out of the property market.
However, a recent Federal Parliamentary inquiry found no solid evidence linking foreign investment as a factor to driving up housing prices. On the contrary, the report found that foreign investment was beneficial for Australia:
“Rather than causing price pressures, the evidence suggests that foreign investments may actually help keep prices lower by increasing supply.”
One key point industry experts told the inquiry was that foreign property investors and first home buyers rarely competed for the same properties. Foreign investors tend to prefer new, high-density developments close to amenities, generally above the average national sales average, way beyond what first home buyers are looking for.
The inquiry did note that more accurate, timely data would help and that current foreign investment property laws in Australia could be better enforced.
Another report, conducted by the Property Council of Australia, found that foreign investors currently fund around $20bn of Australia’s commercial real estate, therefore a major contribution to Australia’s economy and economic prosperity.
The report estimates that a 20 per cent reduction in foreign investment for development of new commercial buildings would slash Australia’s GDP by $3.2bn (or $21.4bn over 10 years), almost the same as the total gross value added (GVA) of Australia’s coal-fired electricity generation industry ($3.4 billion).
In the report, Property Council CEO Kent Morrison asserts how foreign investment in real estate gets new projects off the ground, increases housing and office stock, boosts our national capacity and federal government revenues, and increases tax collections to all levels of government.
“According to Treasury, the presence of foreign investment adds just $80 to $122 to the price of a Sydney or Melbourne home.”
Attracting Property Developer Investors
In a recent Development Ready podcast, we asked Neil Cooke of leading real estate agency Savills for his opinion on foreign investors from a property development perspective. He stated that foreign investors are much keener on DA approved sites, due to them not wanting the pain and risk attached with the planning process.
He also stressed that there is a sustained popularity of property development among local investors and concluded that the rise in house prices is due to a rise in competition across the board.
With this knowledge, property developers should aim to make their projects more enticing to foreign investors by skipping the FIRB application process.
Foreign investors are restricted to purchasing off-the-plan or brand new dwellings directly from the developer and normally a property developer will apply for a New Dwelling Exemption Certificate to sell new dwellings in a specified development to foreign persons. Developers (either Australian or foreign) can apply, provided that the development:
- will consist of 50 or more dwellings;
- has development approval from the relevant government authority; and
- if applicable, that foreign investment approval was sought to purchase the land and that any required conditions are being met.
But a property developer can also apply for streamlined bulk approval, which allows an application to be finalised within 10 business days, instead of the normal 30-day turnaround, for dwellings valued less than $3 million. This provides major cost saving and adds convenience to foreign buyers as they can skip the FIRB approval process.