How to attract offshore buyers to your residential property development

The general topic of foreign investment into Australia property almost always attracts a lot of attention. As it were, "selling the farm" has never been an overly popular idea. And at various times there has been a lot of attention paid to the suggestion that to many Australian homes were being sold to offshore buyers.

However, when taking new residential projects offshore, there is no guarantee of success, and like so many aspects of project marketing, the devil really is in the detail. Reputation is a key ingredient in markets where family and business ties are important. Before looking at the specifics of how to take a new residential project to offshore markets, I would like to put the market into some context.

The offshore market potential

According to Foreign Investment Review Board figures in 2010-11 real estate investment accounted for 23% of total foreign investment into Australia by value, and only mineral exploration and development and services are bigger sector.

So let me firstly put this into some general perspective. Australia-wide the total value of dwelling sales over the 2010-11 financial year was $193.5 billion. Houses accounted for $141.8 billion and units for almost $51.7 billion with these sales, including both new and established stock.

From figures published by the FIRB, approved investment in all forms of real estate was $41.5 billion in 2010-11 (compared with $20.0 billion in 2009-10). It does, however, have to be noted that these figures were affected by changes to the policy and administrative arrangements for residential property and so they do not provide a comparable view of investment activity in this sector.

Residential investment accounted for $20.92 billion for some 9,556 dwellings, of which new dwellings amounted to $12.54 billion of some 3,976 properties. Although the figures are somewhat complex it appears that most investment wound up in Victoria and NSW. It is, however, the new dwellings that are of central interest in our context as a potential target for project marketing, with new dwellings sold off-shore accounting for approximately 6.5% of all sales.

So before we start to look at how we might market to this target, it is worth looking briefly at the FIRB’s definition before we go further into this keenly watched topic.

New dwellings – the FIRBs definition:

“ New dwellings acquired ‘off the plan’ (before construction commences or during the construction phase) or after construction is complete are normally approved where the dwellings: have not previously been sold (that is, they are purchased from the developer); and have not been occupied for more than 12 months.

There are no restrictions on the number of such dwellings in a new development that may be sold to foreign persons, provided that the developer markets the dwellings locally as well as overseas (that is, the dwellings cannot be marketed exclusively overseas).

This category includes dwellings that are part of extensively refurbished buildings where the building’s use has undergone a change from non-residential (for example, office or warehouse) to residential. It does not include established residential real estate that has been refurbished or renovated.

A property purchased under this category may be rented out, sold to Australian interests or other eligible purchasers, or retained for the foreign investor’s own use. Once the property has been purchased, it is second-hand real estate and is subject to the restrictions applying to that category.”

By any reading this is a very clear policy and so sets the stage for taking new apartment projects offshore, the policy sets a firm foundation and avoids any sort of ambiguity, which is a good, as offshore buyers need straight forward rules to work with.

With offshore buyers possibly accounting for 6.5% of sales transactions it is a market worth our attention, but still a market that is a small target and one that requires considerable skill and resources to engage with, and that will be the focus of my next few posts.

Peter Chittenden is managing director for residential of Colliers International.