Whether due to tighter restrictions or other factors, the percentage of Australian properties being snapped up by foreign investors is falling.
According to the latest quarterly ANZ-Property Council survey, the share of property sales to foreign buyers fell modestly in the December quarter, especially in the residential sector.
The decline is captured in the chart below, supplied by ANZ. It is conveniently broken down by state and territory, looking at the evolution in sales percentages over the prior three quarters. It also overlays annual price growth in each region, using data from CoreLogic.
“The reduction in total housing sales to foreign buyers to 21% from 24% last quarter possibly reflects tighter borrowing conditions across the industry,” said Richard Yetsenga, chief economist at ANZ.
“Some lenders have exited the foreign investor segment of the housing market, while some are requiring larger deposits or reducing the amount of overseas income when calculating the ability to service a loan.
As a result, survey respondents expect that the availability of debt finance will remain tight in the residential property space,” he added
Despite the modest reduction, Yetsenga suggests that “a solid domestic economy and expectations of still-attractive price growth suggest that foreign buyers will continue to maintain a sizeable presence in the Australian property market”.
While ANZ remains confident that foreign investment in the property market will remain “sizeable”, the decline in the latest survey — albeit small — will do little to diminish concerns surrounding a potential supply glut in high-density housing negatively impacting some inner-city housing markets, particularly in Brisbane and Melbourne.
In a note released in late October, Bill Evans, chief economist at Westpac, expressed unease about elevated levels of foreign investment in Australia’s apartment market, particularly from China, suggesting it is creating heightened risks for the sector should interest start to slow.
He suggested that recent moves from Chinese policymakers to stymie capital outflows from the country not only heightened risks for apartment prices and settlement on newly constructed apartments, but are also a crucial cog in Australia’s economic transition, the booming residential construction sector.
“At some point, the Chinese authorities, who appear to have stabilised last year’s spectacular near $US 1 trillion loss in foreign reserves, may decide to slow this leakage,” said Evans.
“Certainly we have seen marked evidence of a tightening of capital controls, particularly for the non-corporate sector. That tightening of capital controls might also impact the construction boom.”
In line with the view expressed by ANZ that the slowdown in foreign sales may have been impacted by tighter lending restrictions, Evans also acknowledged that the decision from Australian banks to stop funding FIRB buyers presents “risks to local developers who may have sold more than 50% of their stock to these buyers”.
At a time when Australia is constructing more residential property than ever before, and with a whole lot more coming based off recent building approvals data, sales to foreign investors will likely play a crucial role in determining not only if many of these properties get built, but the outlook for apartment prices in general.