Overseas investors bought more than 10% of all new housing in Australia in the first quarter of 2017, and more than 7% of existing stock, according to new research from the National Australia Bank (NAB) released today.
Most of those purchases were for apartments, putting them in direct competition for housing stock targeted by most local investors, as well as Australian first-home buyers.
The NAB’s quarterly residential property survey, which tracks opinions of around 250 property market experts such as real estate agents, property developers, fund managers and owners, said that 10.8% of total new housing stocks was purchased by foreign investors in the March quarter, down fractionally on the 10.9% level seen in the final three months of 2016.
The survey found that the proportion of new dwellings sold to offshore buyers fell in Victoria and Western Australia, but rose in New South Wales and Queensland.
This chart from the NAB shows the proportion of new homes sold to foreign investors, breaking down the figures by individual state.
In terms of sales of existing properties, the NAB said that 7.2% of sales went to foreign investors during the quarter, down fractionally on the 7.6% level of the prior quarter.
The survey found that the proportion of sales to offshore buyers fell in Victoria and New South Wales, but rose in Western Australia and Queensland.
This chart from the NAB shows the level of foreign buyer activity on a national scale, comparing sales of existing and new properties.
The NAB survey fits with research from Credit Suisse released in March that revealed foreigners were buying property at an annualised rate of $8 billion per annum in late 2016, equating to 25% of new supply in New South Wales and 16% in Victoria in the past 12 months.
This included sales of both new and existing property, and was based off data from the state revenue offices of New South Wales and Victoria following the introduction of new taxes on foreign buyers.
Credit Suisse said that around 80% of investors came from China.
While the proportion of sales to offshore investors has fallen in recent quarters based of the NAB survey, perhaps the most intriguing finding from the survey was the type of properties being purchased by offshore investors.
It found that around 53% of all property purchases made by foreign buyers last quarter were for apartments, with 30% for houses. The remaining 17% were land for redevelopment.
Some 63% of properties purchased by foreign buyers in New South Wales were apartments last quarter, the largest proportion of any state in the survey. That just happened to correspond with a sharp 5.6% increase in apartment prices in Sydney over the same period.
And the vast majority of those purchases were properties valued at $1 million or lower, putting foreign investors in the same market as local investors and first-home buyers.
“1 in 4 apartments bought by foreigners cost less than $500,000, and 45% between $500,000-$1 million,” the NAB says.
“By state, around 44% of apartments sold in Queensland were under $500,000, compared to just 15% in New South Wales and 21% in Victoria. Sales in the $500,000-$1 million range varied from 49% in New South Wales to 41% in Queensland and Western Australia.
For houses, and reflective of recent price gains, particularly in New South Wales and Victoria, the survey found that just 16% of foreign sales were for properties valued at $500,000 or lower.
40% were for properties valued between $500,000-$1 million, and 25% for those valued between $1-2 million.
Along with a recent upswing in local investor activity that began in the middle of last year, the continued prevalence of foreign investor activity in the market helps explain recent strength in Australian capital city house prices.
According to data released by CoreLogic earlier this week, dwelling prices rose 1.4% last month, leaving the increase on a year earlier at 12.9%, the fastest pace since May 2010.
Prices in Sydney and Melbourne — not only favoured markets for local investors but also foreign buyers — rose by 18.9% and 15.9% from a year earlier, well ahead of third-placed Canberra at 12.8%
Huge capital growth, leaving the price of a median-valued dwelling in Sydney and Melbourne up 109.2% and 92.4% from January 2009.
And that’s making it all the more harder for potential first-home buyers in Australia, especially in those cities.
According to new research released by HSBC earlier this week, Australian millennials — those aged 19 to 36 — rank poorly when it comes to home ownership level, sitting well below the levels of other developed markets such as the United States, United Kingdom, Canada and France.
It found that only 28% of Australian millennials owned a home, below the United States, UK and Canada at 35%, 34% and 31% respectively.
Three quarters millennials said that saving a deposit for a home loan was their biggest barrier to entering the market.
A further 61% said that they were earning insufficient income to save for a deposit, an outcome likely driven by elevated levels of unemployment, underemployment and record-low private sector wage growth.
Given the combination of heightened demand from local and offshore investors in the market, fueling strong price growth, it’s little wonder why younger Australians are struggling to save for a deposit, and explains why the housing affordability debate has gone up a cog or two in recent months.
APRA, Australia’s banking regulator, has already taken steps to reduce the amount of local investor activity in the market by limiting the proportion of interest-only mortgage loans to 30% of total new mortgage lending.
However, that was done to curb building financial risks in the housing sector, not to solve housing affordability.
Given foreign investment levels are only continuing to increase based off FIRB and state revenue data, another source of demand, the question many will be asking is whether tighter restrictions on foreign ownership will come next.