Many new homes in Australia sit vacant as foreign investors bank on capital gains

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Australia’s residential construction boom, fuelled largely by enormous growth in high rise apartment construction favoured by offshore investors, may be leaving Melbourne with a raft of vacant properties.

That’s the findings from Prosper Australia, a Melbourne-based research-based organisation seeking to advance economic efficiency and social justice through tax reform and education according to its website, who state in their latest speculative vacancies report that some 82,724 properties, or 4.8% of the city’s entire housing stock, may be unoccupied at present.

The report, in its eighth year of production, seeks to measure the underutilisation of residential property in the city based on water consumption patterns based on data from Melbourne’s three main metropolitan water retailers – City West Water, South East Water and Yarra Valley Water.

Speculative vacancies – classified as unoccupied residences in the report – are assessed as properties with abnormally low water usage of less than 50 litres per day (LpD) over a 12-month period, significantly below the average per capita water usage rate in Melbourne of 160 litres per day recorded in 2014.

According to the report, analysis was undertaken of 1,707,140 residential properties across 254 postcodes over the calendar year 2014. Based on water usage patterns, 82,724, or 4.8% of Melbourne’s total housing stock, appeared to be vacant over this period, having consumed less than 50LpD on average over the calendar year. No water was consumed in 24,872 of the dwellings surveyed.

Citing analysis from Credit Suisse, Catherine Cashmore, the report’s author, notes that 1 in 5 new homes in Melbourne and Sydney, largely high-rise off-the-plan apartments, are sold to offshore buyers.

That fits with analysis from the NAB’s quarterly residential property survey which revealed a substantial level of new property sold in the September quarter went to foreign investors.

As shown in the chart below, supplied by the NAB, over the quarter foreign buyers accounted for 28.5% of all new apartments sold in Victoria, and 26% of all new homes.

Foreign ownership of new real estate is permitted in Australia without restriction, differentiating it from established housing purchases which is subject to review from from the FIRB.

Cashmore suggests that a significant proportion of foreign owned real estate is vacant and withheld from use. This essentially means that while new properties are being purchased by foreign investors, not all are being occupied, doing little to alleviate housing supply shortages nor inflated accommodation costs.

“In some apartment blocks in Melbourne, entire floors have been sold and lie vacant,” Cashmore told Bloomberg. “It’s not unusual to walk through a building and be told the owners are from Asia and rarely seen.”

“There is a wall of money that is trying to get into Australia. To fight those forces is going to be very difficult,” she added.

Speaking to the Australian newspaper in July, Century 21 Australia chairman Charles Tarbey suggested that the amount of vacant homes nationwide — which was about 8% at the last census conducted in 2011- would increase as foreign investment did.

“Most of the overseas investors, particularly on the new homes, are buying because they want to invest their money in Australia,” Tarbey told the Australian.

“That doesn’t mean that they are going to move out of their house if they are Hong Kong-based. A lot of them don’t rent out the apartments — they just buy for capital gain. They can afford not to have $50,000 a year of rental income.”

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