While Australia is now building new residential property at an unprecedented rate, so too are the number of foreigners buying it.
From the NAB’s quarterly residential property survey released earlier this morning comes this cracking chart:
It reveals that during the September quarter, 19% of all new apartments, and 14.9% of new homes, were purchased by foreign buyers, up significantly on the 16.1% and 11.5% levels recorded in the three months to June.
In Victoria, foreign activity was particularly strong. Over the quarter, foreign buyers accounted for 28.5% of all new apartments sold, and 26% of all new homes. This was not only significantly higher than the national average but also all other states and territories, including the once in demand New South Wales property market.
In what will no doubt raise a few eyebrows, foreign buyers also accounted for a significantly high number of established property sales.
“Despite stricter restrictions on foreign investment in the established residential property market, our survey continues to suggest that foreign buyers also play a fairly significant role in this part of the market,” wrote the NAB.
“According to surveyed property professionals in Q3, foreign buyers accounted for 11.3% of all established apartment sales (11.4% in Q2) and 9.5% of established house sales (9.4% in Q2).”
As was the case in the new housing market, sales in Victoria were significantly higher than elsewhere in the country, accounting for 19.4% of apartment sales and 16.5% for all houses.
The surge in foreign buying interest in Victoria was likely due to two factors, according to Oster.
“This may have been influenced in part by continued house price growth in Sydney and Melbourne as well as a weaker Aussie dollar.”
While Oster’s analysis fits with what has been seen: the Australian dollar fell by around 10% over the quarter while New South Wales’ property market has seen rapid house price growth – particularly in Sydney – in recent years, there will no doubt be some speculation that the pick-up in buying interest may have coincided with the start of China’s stock market rout, something that was then followed by the surprise renminbi depreciation by the PBOC in early August.
Without hard data – something that will arrive with the latest set of FIRB data early next year – it’s purely speculation, but the timing of the surge in property investment fits with the view that hot money outflows from China may found a home in Australia’s residential property market.
Regardless of whether that is the case or not, foreign buyer activity in the residential property market is growing, adding to already heightened concerns over Australian housing affordability.
If foreigners are now buying close to one fifth of new supply coming onto the market, or significantly more in the case of Victoria, it’s hard to see housing affordability improving anytime soon in the absence of a sharp decline in activity from other segments of the market.