Foreign investors continue to turn away from Australian residential real estate, with the latest figures showing the value of approvals collapsing.
Foreign investors continue to turn away from Australian residential real estate, with the latest figures showing the value of approvals collapsing to $10.4 billion, from more than $17 billion a year earlier.
The Foreign Investment Review Board Annual Report showed that to the end of the 2021 financial year, residential investors were approved to make just 4,384 residential real estate investments, down 37.8 from a year earlier.
While much of the blame has been placed on the closure of international borders, the total value of international investment across all industry sectors was actually up 19 per cent, increasing from $195.5 billion in 2019-20 to $233.0 billion in 2020-21.
Commercial real estate was similarly unaffected, recording large gains. It attracted $82.0 billion, an increase of $43.2 billion. The 862 commercial real estate investment proposals were worth $82.0 billion, compared to 440 approvals worth $38.8 billion the year before.
Juwai IQI Group Managing Director Daniel Ho said overseas demand for residential real estate was down partly because of Covid and the related restrictions but also a range of other factors.
“It is also down because it is now harder to finance a purchase in Australia; foreign buyer stamp duties are still high, and foreign investment application fees are now higher than before.
“Another factor holding down the number of applications is actually making it easier for foreign buyers.
“Foreign buyers now only need a single approval, no matter how many properties they have to look at before they buy one.
“Under the old system, buyers needed approval each time they hoped to buy a property.
“If a deal fell through, they would need to go through the approval process again on the next property that they sought, so this reform is very welcome,” Mr Ho said.
The peak of foreign investment in residential property was the 2016-17 financial year when there was $30 billion worth of investment approvals.
The commercial market differs to the residential in that property investors often have local branches that manage their real estate dealings without the need for travel.
Residential real estate investment ranked sixth in value of the seven investment categories. The only sector to receive less investment by value than residential real estate was Agriculture, Forestry and Fishing.
New South Wales ranks only third in the share of residential real estate investment it attracted. Victoria ranks first, attracting 37 per cent of all investment, and in an upset Queensland ranks second (21 per cent).
“Queensland is more affordable, offers a great lifestyle, and has abundant new development property for sale,” Mr Ho said.
“In New South Wales, high construction costs, unaffordability, and constrained infrastructure contributed to the lower number of purchases.”
Overall, he said, Australia remains very attractive to foreign buyers.
“The high costs are balanced out by its strong educational offering, lifestyle benefits, proximity to Asia, and dependable markets and economy.
“The fact that total approved investment increased 19 per cent despite the pandemic demonstrates how good Australia’s brand is.”
Commercial real estate investment went primarily to New South Wales and Victoria. New South Wales received 28 per cent of approvals worth $18.7 billion. Victoria received 24.7 per cent of approvals worth $8.2 billion.
China on the slide
The United States had the most approved real estate investment at $20.832 billion, followed by Singapore at $13.849 billion, Germany at $7.572 billion and Canada at $7.371 billion.
Mainland China, which not long ago topped the charts, was the fifth ranked country in terms of approved real estate investment, with $6.306 billion of investment approved. Hong Kong had $1.419 billion approved.
Other Asian countries with significant investments include Japan with $2.646 billion and Korea with $0.907 billion.
The number of foreigners buying established dwellings also fell sharply to 661, almost half the 1,101 from a year earlier.
There were far fewer breaches of the foreign investment rules. There were 100 properties purchased in breach of the rules, down from 259 a year earlier and well down on the 600 breaches in the 2018-19 financial year when the tax office took over responsibility for monitoring compliance.