Australia needs a better way to measure foreign investment in its housing market

Photo: Max Mumby/Indigo/Getty Images

The level of foreign buying activity in Australia’s housing market fell to a five-year low during the September quarter, according to the latest National Australia Bank (NAB) Residential Property Survey, a result in stark contrast to other recent reports that suggest buying levels remain as firm as ever.

Yes, no one can really say what’s happening with any great degree of certainty.

The NAB survey, collating responses from around 300 property experts including real estate agents, property developers, fund managers and owners, found that the proportion of sales to foreign investors for new properties fell to just 9.5% in the three months to September, leaving it at the lowest level since 2012.

The chart below shows the proportion of sales to foreign investors — both for new and existing dwellings — reported by the survey respondents.

Source: NAB

There’s been quite a noticeable decline with the proportion of sales now at nearly half the levels of mid-2014, something the NAB says may have been caused by tighter lending restrictions on foreign buyers.

The survey found the decline in national sales volumes was concentrated in Victoria and New South Wales, favoured destinations for foreign investor activity in the past.

“Lower foreign buying activity in new property markets was led by Victoria where the share of sales to foreign buyers fell to 14.4%,” the NAB said.

“Foreign buyers were also noticeably less prevalent in New South Wales where their market share fell to 7.8% — the lowest level since Q1 2012.”

In the prior survey, the level of new properties purchased by foreigners in both states stood at 20.8% and 12% respectively.

The survey also found that the level of foreign buying activity fell in Western Australia, coming in at 4.5% compared to 6.9% in the June quarter.

Queensland was the only state to buck the trend with the level of buying activity rising to 11.4%, up from 8.6% previously.

The NAB said the rebound in the sunshine state came despite the introduction of a foreign investor land tax surcharge in July 2017.

Here’s the trend in each of those states since the survey began in 2010.

Source: NAB

While the figures tend to jump around quarter-to-quarter, looking through the volatility, the overall trend is lower.

For established housing markets, the survey found that the proportion of sales to offshore buyers edged higher over the September quarter, lifting to 5.9% from 5.6% in the three months to June.

The modest increase was yet again driven by Queensland where the proportion of sales rose to 6.7% from 3.8% in the June quarter, offsetting declining levels of activity in Victoria, New South Wales and Western Australia.

However, from a national perspective, buying levels still remain around the lowest levels in five years despite the modest increase recorded during the quarter.

Source: NAB

As for the type of dwellings purchased, the survey discovered that there’s been a distinct shift away from apartments towards housing from a broader perspective.

“Around 49% of all residential properties purchased in Australia by foreign investors were for apartments, although this share fell for the second consecutive quarter and was down from almost 54% in the March quarter,” the NAB said.

“At the same time, the share of houses being purchased climbed to a survey high 36.3%, from 35.2% in the previous quarter and just under 30% in the March quarter.”

The remainder of sales — a little over 14% — were classified as land or dwellings for re-development.

However, as seen in the chart below, the mix of sales varied across the country with units still in high demand in New South Wales, Australia’s most expensive housing market.

Source: NAB

The result from the NAB survey contrasts to other recent reports suggesting that foreign buying activity remains as strong as ever.

Indeed, according to research from Credit Suisse this week, foreign buyers are currently snapping up Australian property at an annualised rate of $10 billion per year in New South Wales, Victoria and Queensland based on tax revenue data, showing few signs that capital control restrictions in China and higher property prices are deterring buyers from offshore.

A separate survey from ANZ Bank also found that buying levels in residential property remained firm, particularly in New South Wales and Victoria.

The contrasting data sets muddies the waters on the level of foreign buyer activity in the Australian housing market, with some suggesting that activity is strong while others say its weakening.

For clarity purposes, the NAB and ANZ surveys are based on self-reporting from respondents, while the Credit Suisse data is calculated using state revenue data from various state governments under a freedom of information request.

While that suggests that perhaps more weight should be put on the Credit Suisse research, it underlines just how opaque and confusing the level of buying activity is in Australia’s property market.

For a sector worth in excess of $6.5 trillion, and the enormous revenues it provides to state and territory governments, it does beg the question why there’s not a real-time measure on what is truly happening.

Yes, Australia’s Foreign Investment Review Board (FIRB) does release data on investment levels, although it’s hardly timely, coming out years after the event.

According to the most recent data, $AU247.9 billion worth of investment was approved in the 2015/16 financial year, up from $191.9 billion in 2014/15.

China, at $31.9 billion, was the largest source of investment in real estate, easily overshadowing the United States in second place at $8.2 billion.

Figures for 2016/17, last financial year just passed, will not be released until well into 2018.

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