Foreign home buyers move beyond the big cities

Photo: Mark Metcalfe/ Getty.

The ANZ-Property Council December quarter survey, a wide-ranging report that investigates current trends seen in Australia’s residential and commercial property markets, was released today.

One chart in particular caught our attention. Shown below, it reveals the percentage of residential property sales made to foreign investors in each of the past four quarters – both for individual states and territories and the country as a whole.

Predictably, the percentage of sales to foreign investors are the greatest in Australia’s two largest housing markets, New South Wales and Victoria. In NSW, 24.8% of all sales were made to foreign investors, down on the 26.3% level of the September quarter, while those in Victoria inched down to a still-high 30.1% from 30.5% seen previously.

However, while the proportion of sales to foreigners fell in NSW and Victoria, most other capital cities saw a noticeable uplift in foreign buyer activity.

South Australia, for instance, saw the percentage of sales jump to 18.9% from 14.0% in the September quarter. In Queensland they rose to 19% from 18.6%, while in Western Australia they increased to 11.9% from 11.4%.

Overall, largely as a reduction in the proportion of sales to foreigners in NSW, the national percentage of sales fell marginally from 22.4% to 22.3%.

Given the lower Australian dollar, something that has seen Australian residential property prices remain largely unchanged against the Chinese renminbi, US dollar and other currencies pegged to the greenback and seen annual overseas visitor arrivals soar to an all-time record high in August, perhaps word is spreading that there are some beautiful parts of Australia that exist outside of NSW and Victoria that come at an only a fraction of the price.

That certainly fits with the trend in approvals to foreign investors to buy Australian residential property in recent years.

According to the most up to date data released by Australia’s foreign investor review board (FIRB), during the 2013/14 financial year the total value of residential property purchased by foreign investors jumped to $34.7 billion, a massive 102% larger than the $17.2 billion figure seen in the previous corresponding year.

While only a fraction of the value of Australia’s total residential housing stock – by some estimates it’s now valued at around $6 trillion – the figure reflected in ANZ’s chart, and the FIRB figures, are for for total turnover over a period of time.

Given the rising middle class in not only China but many parts of Asia, along with expectations for continued Australian dollar weakness in the years ahead, it seems far more plausible that foreign demand will increase, rather than decrease, in the years ahead.

While that will help underpin demand and as a consequence prices, something that will no doubt please those who are already property owners, it may also contribute to a further deterioration in housing affordability among younger Australians looking to enter the property market.

That’s one area that has created fierce debate across the country in recent years, particularly given former Australian treasurer Joe Hockey’s statement earlier this year that in order to afford a property in Sydney, Australia’s most expensive housing market, one would need to “get a good job that pays good money.”

APRA, in consultation with the RBA, has looked to cool the growth in Australian house prices by implementing stricter criteria on lending to housing investors in recent months. Interest rates have been increased, along with capital requirements for banks. However, with increased foreign investment likely to continue, it’s unlikely that the housing affordability debate will subside anytime in the near future.

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