Foreign buyers do not reduce residential dwelling supply: RBA's Jonathan Kearns

Foreign buyers do not reduce residential dwelling supply: RBA's Jonathan Kearns
Foreign buyers do not reduce residential dwelling supply: RBA's Jonathan Kearns

Purchases by foreign buyers do not, on the whole, reduce the supply of dwellings available to local residents, according to the RBA.

"In fact they may actually contribute to expansion of the housing stock," according to Jonathan Kearns the bank's head of Financial Stability.

He said foreign buyers in Australia for work or study would have been renting if they did not purchase.

"Other foreign buyers rent the property as an investment and so contribute to the rental stock.

"Also, there are some new developments that only proceed because they get high pre-sales from foreign buyers," he said in a speech to the Aus-China Property Developers, Investors & Financiers.

The speech noted purchases by foreign buyers have received considerable focus in recent years.

However he did acknowledge foreign buyers of residential property could amplify cycles or transmit foreign shocks.

"Non-residents purchasing Australian real estate as an investment may choose between different countries based on expected returns, which can increase the correlation of the Australian market with other countries.

"Changes in economic and regulatory conditions in foreign buyers' home countries can also be transmitted to their demand for Australian property.

"But if purchases of residential property by foreign buyers mainly depend on conditions in their home country, their participation could actually have a moderating impact on the Australian housing cycle."

Kearns noted non-residents are able to purchase newly constructed dwellings in Australia, while temporary residents, such as those in Australia for work or study, are able to purchase an existing dwelling for their primary residence.

"It has been hard to get a firm estimate of how large these purchases are, but drawing on a range of sources, it seems that, nationally, purchases by foreign buyers are equivalent to around 10-15 per cent of new construction, or about 5 per cent of total housing sales," he noted.

"The share of new construction purchases is highest in Melbourne and Sydney.

"It is also higher for apartments, but it is still only perhaps around one-quarter of newly built apartments.

"Many foreign buyers come from China, seemingly around three-quarters."

He noted purchases of new properties by foreign buyers have eased over the past year, reportedly because of stricter enforcement of Chinese capital controls and tighter access to finance for foreign buyers.

Kearns concluded the strength of the Australian property market, and the participation by foreign buyers, had enticed some foreign developers to Australia for specific projects, "but overall they remain a small part of the market."

Foreign banks also have a very small role in residential property lending in Australia, he added.

 

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Foreign Investment

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