This article is from the Australian Property Journal archive
FOREIGN investors are unlikely to have been the main driving factor behind the recent increase in prices, the Reserve Bank of Australia said.
The RBA’s latest report, Foreign Investment in Residential Real Estate, authored by Maurice Gauder, Claire Houssard and David Orsmond, said while foreign residential purchases change a bit from year to year, they have been relatively steady and fairly low as a share of turnover in the housing market in Australia and hence are unlikely to have been the main driving factor behind the recent increase in prices.
The report said nonetheless, there is evidence that foreign purchases play a more prominent role in some parts of the housing market, such as Sydney and Melbourne, than in other capital cities.
The report also dismissed views that foreign investors are pricing out first homebuyers.
“The data available – while incomplete – suggest that first home buyers have generally purchased established rather than new dwellings, and purchased dwellings that are cheaper than the national average.
“Both of these are parts of the overall housing market where foreign residential purchasers do not appear to have a major presence. While state incentives for first home buyers have recently shifted toward the purchase of new rather than established dwellings – and hence to the area of the housing market where foreign buyers generally have a greater presence – the degree of competition with foreign buyers is still likely to be fairly small,”
The RBA said foreign investors tend to be concentrated in the higher-priced parts of the housing market.
“Although it is possible that this average is elevated somewhat by a few approvals to purchase very high-priced homes,”
The Foreign Investment Review Board data indicate that the average purchase price in 2012/13 was around $650,000 for a new dwelling and around $1 million for an established home.
The report said whether the purchase of a property by a foreign citizen represents an increase in overall demand for housing in Australia depends on a number of factors.
“For example, if the dwelling is purchased to house a child studying in Australia who would otherwise have had to rent a home, or if the property bought by a foreign citizen is subsequently rented out, then the purchase itself does not represent an addition to demand for housing.
“Conversely, if a new dwelling is kept vacant after being purchased by a foreign citizen then there will be a net increase in demand for housing. The overall impact on the housing market of ownership by foreign citizens also depends not only on their purchases, but on their subsequent sales. If the flow of purchases and sales by foreign citizens roughly balance, then there is likely to be little effect on overall demand and house prices from foreign participation in the housing market,” the report said.
Meanwhile the report said the impact of foreign residential developers in adding to the overall supply of new dwellings in Australia is more difficult to determine, although on balance it is probably positive.
It noted that foreign developers often fund projects using offshore financing, which diversifies the source of funding and at times may increase the overall level of funds available for dwelling investment in Australia.
Finally the report said dwelling purchases and development by foreign residents can increase the exposure of the Australian housing market to business cycles offshore.
“This may amplify Australia’s business cycle to the extent that economic cycles are synchronised globally, but may act to dampen the effect on local activity to the extent that business cycles are idiosyncratic across countries,”
“The data and liaison suggest that foreign residential investment is concentrated in some parts of the housing market, though not generally in the parts where first home buyers have a major presence.
“While it is difficult to know the counterfactual, purchases by foreign residents and construction by foreign developers have probably resulted in a somewhat higher stock of housing in Australia than would otherwise have been the case, although by a magnitude that is difficult to determine,” the report concluded.
Property Review
