House prices are rising, and so, it seems are fears that foreign investors could be overheating the residential property market.
Capital city house prices increased by 2.3 per cent in March, according to the RP Data Rismark Home Value Index.
The median house price in Australian capital cities is now $510,000, according to the index, with Sydney the most expensive at a median of $630,000.
Half of all capital cities – namely Sydney, Melbourne, Perth and Canberra – are now at record high prices, according to RP Data research director Tim Lawless. In the last 12 months, Sydney homes increased by a whopping 15.6 per cent.
These rising home prices are fuelling fears that foreign nationals buying into the local market are pushing up sale prices, but several experts believe this is not the case. In fact, Asian investors in particular might be helping to contain prices.
Who can buy Australian property?
Under Australian law, non-residents and temporary residents are not permitted to buy second-hand homes, unless an exception is granted.
They may buy new dwellings with the approval of the Foreign Investment Review Board (FIRB), which is a formality. In 2012-13, the FIRB refused none of these applications.
When they buy a new dwelling, they help by adding to the housing supply and thereby help to satisfy demand, which has a dampening effect on prices.
“You’re forcing the overseas investors to buy new dwellings, which I think would put a high demand on new constructions and new zoning and so on. I think it’s a very smart law in that sense,” said Jakob Marsden, a professor of economics at Monash University.
He also pointed out that it “doesn’t matter who buys investment properties, so long as these houses are rented out”, as more rental properties would also eventually drive down purchase prices.
“Every time the housing market goes up, and not just in Australia but across the whole world, they try to find an explanation. And they do like to blame foreigners – they are the usual culprit,” said Professor Marsden, a professor of economics at Monash University.
Marsden, known as the ‘Doomsday Professor’ in Denmark because he correctly predicted the collapse of the housing market there, did not mince words – he described the accusations as “bulls**t.”
Confusing Asian families with business investors
Much of the hype around Asian investors conflates non-residents and temporary residents with those who have permanent residency. Permanent residents don’t need government clearance to buy homes, whereas overseas investors do.
Chinese families and university students are being lumped into the same category as investors who live overseas, according to Carl Jetter, long-term publisher of business bulletin Australia China Connections.
Many of these home buyers live in and contribute to the local economy, and are an important source of funding for the education sector, Mr Jetter said.
“Chinese families look to invest in property, they do it because they’re sending their children and their families here to study, so it goes very much hand in hand, which is very often ignored,” he said.
“They’re Chinese families. They’re buying property here to house their children who are going to study.”
Government action
The government appears to be taking the issue seriously. On March 19, the Treasurer Joe Hockey told the Standing Committee on Economics to investigate foreign investment in the domestic housing market.
Anecdotal evidence collated by several media outlets seems to lend credence to these fears – mainly that Asian buyers are outbidding Aussies for homes in certain suburbs.
A recent Credit Suisse report estimated that 18 per cent of new homes in Sydney and 14 per cent in Melbourne are being bought by Chinese buyers, with up to $44 billion of investment expected in the seven years to 2020.
But a closer look at the data suggests that these concerns are unfounded.
