Foreign InvestmentIndustryLatest NewsReal Estate

Common Misconceptions of Foreign Property Development

The recent surge in commercial real estate in Australia’s major cities have been fuelling foreign investment confidence and encouraging foreign nationals to open their wallets and hearts to the highly sought after Australian dream of owning property.

So when we think about Chinese nationals injecting their investment funds into the veins of Australian real estate, we should be thinking about the growth prospects for Australian real estate agents, mortgage brokers and property developers.

Yet, in early April last year the Victorian government slapped an unprecedented 7% tax for foreign purchases of residential property in an attempt to ride down overseas investments.

And Queensland soon followed suit, introducing an additional 3% surcharge on any foreign buyer of property, including any person who isn’t yet foreign but becomes so within 3 years of the original transaction date.

So, why are Australian state governments seemingly biting the hand that feeds us and adopting such a hostile take on foreign investment policy?

The answer is: it’s what we asked for.

Australians have been complaining that overseas property buyers are responsible for the sky rocketing prices in major Australian cities in recent years. Since June 2012, average market prices in Sydney for residential homes have inflated in excess of 64% and 44% in Melbourne. Economists at UBS have also confirmed that foreign investment may occupy a quarter of all property developments nationwide.

However, the idea that foreign nationals are pushing up property prices in Australia is an all too common misconception. According to a study conducted by the University of Sydney, offshore purchases of Australian property from Chinese buyers totalled only 2% of all transactions in the 2014 financial year. Based on these figures, it’s difficult to argue that foreign investment is solely responsible for driving up prices of Australian homes.

Michael Yardney, a director of Metropole Property Strategists, claims that a portion of the blame should also settle on owner occupiers who¬† ‘buy with their hearts more than their calculators’ because they have more sentimental and lifestyle incentives to offer higher prices for a home than colour-blind investors who only care about the black and whites of capital appreciation and return on investments.

If anything, higher levels of foreign investment should be lowering property prices instead of raising them. There is currently an oversupply of apartments in the CBDs of Melbourne and Brisbane, yet foreign investors are still pouring funds into building more commercial infrastructure to fulfil the ever growing demands of their clients abroad. This oversupply places a downward pressure on average prices of units and apartments in the CBD, making them more affordable and accessible to local Australians.

At the end of the day, what matters is that more properties are becoming available to us and providing growth to the Australian real estate industry.

Have you found a property with a price that you just can’t ignore? Help us help you navigate the legal maze of what comes next and provide you with the ease and comfort that you deserve. Give one of our lawyers a call now!

Having heard what other people are saying, do you agree that the pros of foreign property development outweigh the cons? Leave a comment below to share your thoughts! Healy

Author Healy

More posts by Healy

Leave a Reply