Too many overseas buyers?

How many foreign buyers are there in the Australian residential market?

Well the simple answer is:  no one knows.

The issue of foreign investment in Australian residential property markets has been thrust into the spotlight over recent months with speculation mounting that foreign buyers are distorting Australian home values due to the their demand and spending power.

The problem largely comes back to a relaxation in the Foreign Investment Review Board (FIRB) criteria, which changed in December 2008 to provide foreigners on temporary visas more freedom in purchasing Australian real estate.  The changes came into effect on March 31 of 2009.

The complete list of FIRB exemptions are provided here.

The exemptions that are most relevant to this issue are in relation to temporary residents.  As taken from the FIRB web site, temporary residents are exempt from any restrictions if they are purchasing certain residential property as follows:

  • single block(s) of vacant land;
  • new dwelling(s); and/or
  • a second hand dwelling to be used as your principal place of residence (including if it is going to be demolished first then redeveloped);

FIRB’s definition of a temporary resident can be found here.  In simple terms, this means that anyone with a temporary visa of at least 12 months can buy a property in Australia.   And they don’t have to notify the Government that they are doing so.

Additionally there is no longer a $300,000 cap on their purchases, which means the premium housing market is likely to be a popular target for any wealthy 12 month plus visa holders.

These relaxations particularly relate to overseas students who are typically granted a visa for more than 12 months and overseas business people who are in Australia for more than a year.

When the rules were first changed, the Government issued a press release (see here) outlining the changes and asserting the benefits that such changes would bring, including a more streamlined administrative system for residential housing purchases by foreigners and improved flexibility for foreign buyers.  The last sentence in the media release states:

“The Government will monitor the changes to ensure these continue to be in the national interest.”

That doesn’t seem to have happened.

For an issue that is so important, amazingly, there is no hard data being captured on how many overseas buyers are active in the Australian market, and the Government appears to have no idea what the scale of overseas buying is.  All we have to go on is the anecdotal comments from industry professionals and those active in the market.

With such aggressive media attention now bringing this issue into the spotlight and with housing affordability once again becoming a pressing issue, it is highly likely we will see some type of action from the Government.  Who knows… the rules may not need to be wound back.  But without question there needs to an improvement as to how foreign buying in our housing markets is monitored, measured and controlled.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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16 Responses to Too many overseas buyers?

  1. Tal April 23, 2010 at 12:57 pm #

    I wonder if we’re not pricing Australians out of the housing market in our own country?

    I would like to know more about this.

    • RP Data Research April 23, 2010 at 1:00 pm #

      Well, that’s what most people are wondering (us included). Before we jump to any conclusions we need to be able to measure the number of overseas buyers and then we can start t assess the impact of their purchases.

  2. David April 23, 2010 at 1:42 pm #

    This is the biggest elephant in the room for as long as I can remember. Some recent stats to seek out are:

    The number of foreign ‘students’ here (465,000 at last announcement from memory) and the number of approvals for home purchase based upon that status. The gross value of these purchases would be interesting too.

    The rate of sale from foreign student status owners as against the rate of take up over the past 10 years. (ie net retention).

    The number of business imigrants purchasing property and overall value, and the number of this status selling as against the number repatriating to another country (ie indicating investments held here while not residents) … (the FIRB was responsible for monitoring business imigrant economic and social influence in the early 90’s and in 1993 they declared that after three years residing here, they had no idea where they were or what 65% of the ‘business’ imigrants were doing. ie they were not registered on census, for tax, or other public records. This can be verified from FIRB annual reports at the time).

    Large residential unit developers target directly to the Chinese market and I imagine sell far more than the 50% proportion of new units, we generously allow, to foreign owners.

    Who is responsible for monitoring and policing the ability of foreigners to buy our property? Foreign ownership of residential real estate is potentially the biggest economic influence on households in our country and the people responsible for monitoring and developing policy in this area should not be able to hide from their responsibilities.

    I also very much doubt whether the ‘net’ gain from immigration is what it has been spruiked to be when the impact of inflation on housing is taken into acccount. Housing is an unproductive asset.

  3. Anonymous April 23, 2010 at 3:05 pm #

    It has been well recognised that the non recourse loans available in the US housing market were one of the major reasons for the GFC.
    By lending money to foriegn purchasers our financial institutions are in effect doing the same.
    When the inevitable downturn in our property market eventually occures and the purchasers fail to service thier debt and then repatriates to thier home country -How will the lender in Australia be able to recoup the shortfall from assetts held in another jurisdiction??

  4. Richard April 23, 2010 at 3:30 pm #

    Interesting to know how many of the finance approvals were refinancing other loans.
    Apart from the inner cities property sales and prices are falling.
    The constant speculation about interest rates is not building confidence.
    I believe rates should only be considered for change every 3 months.
    The economy needs stability.

  5. Luke April 23, 2010 at 3:42 pm #

    RP data, Interesting your opinion differs to your mate Christopher Joye. <> I think Chris has been banging on for so long that that australian property is not overpriced he can’t comment on the issue.

    But I absolutely agree with you (RP research) here.

    Land Banking by TR’s is the root and cause of the house price explosion evidenced in Melbourne. It is not the temp students putting up the funds its the parents. There are also foreign syndicates pooling funds to land bank property under the disguise of TR.

    The monetary limit must be reimplemented immediately.

  6. MT April 23, 2010 at 11:02 pm #

    Now we even have David Airey, president of Real Estate Institute Aust airing his grave concerns about the ramifications of foreign land banking in this country.

    http://bit.ly/b4hMHN

    This is yet another one to add to the list of monumental failure’s by Rudd.

  7. Lefty April 24, 2010 at 6:09 am #

    I don’t doubt that foreign buyers are having some level of impact but we should not lose sight of the fact that house prices in Australia were becoming rather high long before the FIRB decision was made to relax the rules.

    If foreigners are having a significant effect then it comes on top of pre-existing factors.

  8. Deo April 24, 2010 at 12:58 pm #

    In China, people can purchase Australian new dwellings without any restriction. This market is booming in here now. Many buyers has invested more than 1 house/apartment.

  9. Megan April 24, 2010 at 2:00 pm #

    We’ve just been to an open inspection for a property in our local area, Beacon Hill, Sydney. The agent, Richardson & Wrench, had a “list of comparable sales” sitting next to his pile of glossy brochures: street addresses were given, as well as number of bedrooms, land size and price. No suburb names were given.

    Unbelievably, NONE of the properties were in the same area! They were all in much more expensive areas. One of them was in fact a brand new property we had owned personally in Balgowlah: a much more up-market suburb. The correct sales price of $1.67 million was given, but how can you compare a brand new property in a very prestigious suburb with ocean views, to an old renovated property in an unprestigious suburb, with very average views and smaller land?

    The values for all eight properties listed was between $1.53 million (for a property in a new housing estate on more than double the land) to $2,100,000 for a property in the same estate.

    The actual real facts are: the highest price paid for any property EVER in the street was $900,000. The latest sale in the street fetched $775,000 in August 2009.

    This is sinfully deceptive!

    There were several Chinese couples and families there. The agent was clearly aiming to take advantage of their ignorance (and the recent government changes allowing temporary Australian residents complete freedom to buy property here). The goal was clearly to trick them into paying more that half a million dollars over the real value. The agent was supporting the deception with his sales pitch estimating the expected price for the property to be in excess of $1.6 million!

    I told the agent what that the addresses and information he was giving was highly deceptive. I pointed out the Balgowlah property and his response was, “I don’t know how that got on there.” Well, all eight addresses given were incomparable, not just that one!

    All Australians must write to the government and insist that the relaxation on rules for international buyers (in our property market) be reversed back to what they were. This is imperative if we want to continue owning our own homes.

    Unless something is done NOW, Australians will be priced out of their own property market in months and foreigners will own our homes. This will result in a multi-layered crisis:

    • We will not be able to afford to purchase a home.
    • We will be at the mercy of international landlords, who (if they rent out their properties at all) could charge any ludicrous amount for rent.
    • Homelessness will soar, with even the current middle class having nowhere to live.

    The people, the media, the Australian citizens MUST do something now before it’s too late.

    • yvonne April 14, 2012 at 8:12 am #

      Absolutely agree with every word – been in conveyancing industry for over 40 years – knew 2010 Rudd had sold us out, chinese buyers pushing up housing prices, rarely renting out and will cause crisis in our rental properties – warned clients late 2010 we would be well and truly in recession mid 2012 – knew young people could not afford housing anymore

      yes, Rudd sold us Australians out – when is Mz Gillard going to correct before Australians do not own their own country anymore???

  10. Lefty April 24, 2010 at 9:45 pm #

    Megan,

    the situation regarding foreign buyers has been partly reversed.

    Don’t forget that house prices skyrocketed long before the Rudd government relaxed the foreign ownership rules.

    I personally feel that that the biggest drivers of overpriced housing are the desire for ever larger, grander homes and the much increased desire among Australians for second or multiple property ownership combined with perks such as negative gearing.

  11. Kevin April 27, 2010 at 10:08 am #

    I’m just not convinced yet that overseas buyers are having an impact that great to affect national median prices.

    Stop and think for a moment the number of Australian citizens + PRs vs the number of TRs. Isn’t is very disproportionate? Aren’t we in the vast majority? Aren’t Australians owners of the majority of homes? And aren’t we the majority buying due to population growth and urbanisation? Surely the number of international students doesn’t outnumber the number of Australian students?

    Yes there may be some unfair and misleading conduct by a minority of real estate agents. Yes there may be some land banking (but most of the land bank value is controlled by the developers, so to say TR are manipulating land prices via land banking is a moot point as they have a minimal effect overall). Yes i know of many international students whose parents have bought them an apartment in the city close to uni (not your million $ mansion) and perhaps these are at a premium. But all this is surely in the minority?

    Developers aren’t allowed to sell most of their stock to overseas buyers. It’s a requirement by banks as part of a risk management policy. It’s probably a good idea to evaluate the facts and figures first before embarking on the media band wagon and drawing early conclusions that overseas investors and immigrants are taking over our country leaving many homeless.

    It would be very interesting to see what the numbers reveal. And also to evaluate the changing dynamics with urban gentrification, urbanisation, and movement towards regional centres.

  12. Jeff April 27, 2010 at 11:00 am #

    I work for a developer selling house and land packages in the south eastern suburbs. The sale prices were increased up to $30,000 the moment the first home buyer grant came into effect.

  13. Jimmy April 29, 2010 at 8:52 am #

    Why not only allow overseas investors to buy new or build new properties Australia. Not only will this ease demand pressures but will also reduce competition in the existing dwelling market.

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