Official data reveals the collapse in foreign investment activity in Australia's housing market

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  • The value and number of approvals for foreign investment in Australia’s housing market tumbled last financial year, according to data released by Australia’s Foreign Investment Review Board (FIRB)
  • A total of 13,198 residential real estate applications were approved, totalling $25.2 billion, down from 40,149 approvals worth $72.4 billion in the 2015/16 financial year.
  • China and the US, at $38.9 billion and $26.4 billion respectively, were the top two sources of total foreign investment last financial year.

The value of approvals for foreign investment in Australia’s housing market tumbled in the last financial year, reflecting higher charges, tighter restrictions and the introduction of capital controls in China at the start of 2016.

According to Australia’s Foreign Investment Review Board (FIRB), a total of 13,198 residential real estate applications were approved for proposed investment in the 2016/17 financial year, totalling $25.2 billion.

As seen in the chart below, that was well down on the 40,149 approvals, totalling $72.4 billion, granted in the 2015/16 financial year.

Australia Foreign Investment Review Board

For clarity, approvals are indicative of potential rather than actual investment.

The 2016/17 figure was the lowest since 2012/13 financial year.

“A significant factor contributing to the reduction applications for the reporting period was the introduction of application fees from 1 December 2015,” the FIRB said.

“The introduction of fees resulted in investors only applying for properties they intend to purchase.

“Prior to the introduction of fees, individuals often made several applications earlier in the process when considering multiple properties, even though they might have only ended up purchasing a single property.

“This suggests that the resulting reduction in approvals may not imply a corresponding a reduction in actual investment in residential real estate. That is, the actual decline is likely to be lower than implied by the data.”

Along with the introduction of state-based taxes on foreign investors, the FIRB said weaker demand from China was another factor behind the decline in approvals granted.

“The approvals data also reveal a decline in the total number and value of approvals for Chinese applications, largely driven by reductions in residential real estate approvals,” the FIRB said.

“This likely reflects a range of factors, including the introduction FIRB application fees, Chinese overseas direct investment capital controls and changing macroeconomic conditions.”

Along with affordability constraints, weak household income growth and tighter lending restrictions on local borrowers, the drop in foreign activity in Australia’s housing market has undoubtedly contributed to a slowdown in Australia’s housing market.

Despite the total reduction in residential approvals last financial year, the FIRB said that Victoria and New South Wales remained the favourite destination for investment, accounting for nearly three-quarters of all approvals granted.

“This is consistent with recent years and reflects strong demand for residential property in Sydney and Melbourne,” the FIRB said.

Australia Foreign Investment Review Board

By type of investment, the FIRB said that the vast majority of approvals were for investment, not to buy existing dwellings.

“The proportion of all residential real estate approvals for development remained relatively stable in comparison to the previous year and represents around 88% of the value of all residential approvals in 2016–17,” it said.

Development approvals include those to purchase new dwellings, vacant land and redevelopment of existing residential property, aimed at increasing the size of Australia’s housing stock.

Just 2,008 approvals were given for the purchase of established residential dwellings during the financial year.

Including approvals for both residential and commercial real estate, the FIRB said the dollar value of Chinese real estate approvals stood at $15.254 billion in 2016/17, well below the $31.9 billion level in the prior financial year.

The value of total real estate approvals, regardless of nationality, fell to $69 billion from $122.1 billion a year earlier.

This chart from the FIRB shows the breakdown of approvals by source in 2016/17.

Australia Foreign Investment Review Board

The value of approvals stood at $192.9 billion, down from $247.9 billion in 2015/16.

China and the US, at $38.9 billion and $26.4 billion respectively, remained the top two sources of foreign investment in Australia.

However, those figures were down $8.4 billion and $4.5 billion respectively compared to the levels seen in 2015/16.

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