A new report by The Property Council of Australia has looked into some of the common misconceptions around the effect of foreign property investors on the Australian real estate market.
The paper,
Benefits of Foreign Investment in Real Estate, looked into the myth that foreign buyers were snapping up significant amounts of new dwellings and determined that these fears were overblown. In fact, analysis by the group showed that approvals for the purchase of new dwellings by foreigners reached 11% in 2015-16, equating to around 7.8% of the total residential properties sold across Australia in that time.
While trends have increased from a baseline level of around one to three per cent between 2000-01 and 2012-13, this upward trend boosts the economy with more foreign investment resulting in a greater number of dwellings being built, the Property Council said.
There was also little evidence that many foreign buyers are leaving properties vacant, the report said.
The limited data available seems to come from a paper by Prosper Australia released in 2015. This research was “flawed”, the Property Council said, as it claimed vacancy rates were 4.8% after merely looking at water consumption in parts of Melbourne.
“Dwellings can be vacant for reasons that have nothing to do with speculative investment; it is unsound to make conclusions about all of Melbourne on the basis of a non-random sample; and it is even more unsound to make conclusions about Australia from a partial sample of Melbourne.”
Furthermore, it is impossible to tell from water consumption whether the owner of a property was Australian or a foreigner, they said.
Finally, there is not much evidence to suggest that foreign buyers are aggressively driving up property prices as a whole, the report said.
“Foreign buyers of real estate will make dwelling prices higher than they would otherwise be only if, on balance, they add more to dwelling demand than to dwelling supply. By definition buyers add to demand, but it's also true that real estate developers add to the supply of dwellings in the knowledge that foreign buyers are part of the market.”
The Property Council pointed to a recent analysis by the Treasury in 2016 which found that foreign investment adds between $80 and $122 per quarter to dwelling prices in Sydney and Melbourne – a minor amount compared to the average quarterly price increase of $12,800.
“This is for the whole of Sydney and Melbourne. Foreign investment is not necessarily evenly spread in those cities and in certain post codes it might be the case that foreign investors add a measurable amount to dwelling prices. Or not, as the case may be.”
Ken Morrison, chief executive of the Property Council, warned of what would happen if these misconceptions continue.
“We cannot let the myths about foreign investment continue to go unanswered. Foreign investment in commercial and residential real estate is a vital part of the Australian economy. Too many political leaders are now too frightened to defend what is an essential part of the Australian economic DNA and this is dangerous," he said.
“Foreign investment in real estate gets new projects off the ground, increases housing and office stock, boosts our national capacity and increases tax collections to all levels of government.”
Morrison slammed recent measures introduced by the government targeting foreigners as a tax on Australia's attractiveness to investors.
“If foreign investment for new residential dwellings fell by 20% it would reduce Australia’s economic output by a cumulative $14.8bn over 10 years, reduce annual real GDP by $2.3bn and result in a $5bn loss in Commonwealth revenues and $1bn in state revenues. In total, the loss of GDP would be akin to losing three times Australia’s renewable energy industry.”
Approved foreign purchasers funded up to $7bn in residential development in 2015-16, he said.
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