We now know how many houses foreign investors are buying in New South Wales and Victoria, the hotbeds of Australia’s housing affordability debate.
According to new research based on data obtained under a Freedom of Information request by Hasan Tevfik and Peter Liu, research analysts at Credit Suisse, foreigners are buying property at an annualised rate of $8 billion per annum, equating to 25% of new supply in New South Wales and 16% in Victoria in the past 12 months.
“We have been able to gather new data from the state revenue offices of New South Wales and Victoria that reveal the size, source and changes in foreign demand for Aussie housing,” the pair wrote in a research note on Thursday.
“The data is new and is available because state governments now collect taxes from foreign buyers.”
The bombshell figures suggest that, along with local investors, the level of foreign investor activity in the housing markets has been a significant driver of the price growth of recent years, and the overwhelming majority — a staggering 80% in NSW — is coming from China.
In a note to clients, Tevfik and Liu write:
Now there is credible, official data on the amount of foreign demand for Aussie housing. We made a Freedom of Information Act request for this data and you can imagine our excitement (we are nerds and love new data) when the state governments of NSW and Victoria complied. Here is what the data reveals.
1. Foreign demand for housing in NSW is currently running at an annualised rate of $4.9bn and is the equivalent of 25% of new supply. We think this is extraordinary given that current supply is nearing peak cycle. In Victoria foreign buyers are hoovering up 16% of new supply.
2. When we talk about foreign buyers we are really talking about Chinese buyers. The Chinese have accounted for almost 80% of foreign demand in NSW. The second biggest group, the Indonesians, account for just 1.7% of foreign demand.
3. It is clear foreigners have been able to settle on their Aussie properties more recently despite the numerous impediments of capital controls and the lack of lending by Aussie banks. There is little evidence so far to suggest the flows have stopped.
“The taxes collected imply foreigners are currently purchasing an annualised $4.9 billion of New South Wales housing and $3.1 billion in Victoria,” say Tevfik and Liu.
According to recent data from CoreLogic, the median dwelling price in Sydney increased by 18.9% in the 12 months to mid-March, and by 14.7% in Melbourne. From January 2009, prices in Sydney have surged by 106%. Melbourne price growth has been similarly strong, increasing by 89%.
The rate of price growth has concerned policymakers, with the federal government examining a range of policy responses in its forthcoming budget to address affordability, and the central bank flagging increasing concerns about financial stability.
“In New South Wales there were 1,503 properties settled involving foreign buyers from October 2016 to January 2017 and they totaled $1.63 billion in value.
“Chinese buyers settled on 1,211 or 80% of them and accounted for 77% of the total purchase value.”
Tevfik and Liu say that the Chinese figures include buyers from not only mainland China but also Hong Kong, Macau and Taiwan.
There is also little indication that they are having trouble in meeting their settlement obligations, yet.
“In New South Wales there were $225 million of foreign settlements in October 2016 and this rose to more than $450 million in both November and December. In Victoria the value of December settlements was 50% higher than in November,” they say.
“So despite the capital controls put in place in China, and the local banks refusing to lend to purchasers from abroad, foreign buyers were still able to find the financing to complete their transactions.”
In late 2016, China’s central bank begun vetting capital transfers abroad worth $US5 million or more. Previously, only transfers worth $US50 million were required to be reported to authorities.
Those restrictions were tightened further at the beginning of this year with regulators stipulating that people could not purchase foreign exchange for overseas investment, including for buying houses.
With the tax data on foreign purchases now several months old, whether this is impacting the ability of Chinese investors to settle is, as yet, unknown.
According to a report in The Australian earlier this month, many Chinese buyers were struggling to settle upon apartments that they had previously purchased in Melbourne.
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