FIRB powerless to identify or stop illegal residential purchases, as Chinese investment surges

FIRB powerless to identify or stop illegal residential purchases, as Chinese investment surges
FIRB powerless to identify or stop illegal residential purchases, as Chinese investment surges

There has been a surge in applications by foreign buyers to buy Australian housing, especially new dwellings.

Treasury reported that 10,244 applications had been approved in the nine months to March, compared with 6,567 in the entire 2012-13 year.

While not all approvals result in purchases, the investment approvals are up 55%.

The preliminary data also indicate significant increased investment in Victoria and New South Wales.

Established home purchases by temporary residents has increased but not to the same degree.

The Federal Treasury department suggests while foreign demand has recently risen, the increase in domestic investor and owner-occupier demand across both established and new dwellings in response to low interest rates has likely been much more significant.

But Treasury admits they can not systematically identify non-compliant property acquisitions within the latest surge.

"There are no information sources that can be used to systematically identify non-compliant property acquisitions, nor are there any mechanisms to prevent such transactions from proceeding.

"In this context, a compliance framework is used that places emphasis on information and education initiatives, supported where necessary by more active measures to encourage foreign investor compliance."

The updated details were in the Federal Treasury submission to the House of Representative inquiry into foreign ownership of residential property which Liberal MP chairperson Kelly O’Dwyer has tried to make her high-profile cause.

"Despite the limitations, preliminary approvals data for 2013-14 show that, consistent with the overall housing market, there has been strong growth in foreign investment approvals over the previous year, especially in new dwellings," the submission indicated.

The preliminary 2013-14 data show that, consistent with the overall housing market, there has been strong growth in foreign investment approvals over the previous year.

Of note:

  • Approved proposed investment for the first nine months of 2013-14 was around $24.8 billion, 44% higher than the $17.2 billion approved during all of 2012-13. The total number of residential real estate proposals increased by 4,331 proposals to 15,999 approvals in the first nine months of 2013-14.
  • The majority of the increase is attributable to proposed investment in new property, which at $19.3 billion for the first nine months of 2013-14 is 79% higher than the $10.8 billion in 2012-13. Approvals for proposed investment in new property also represent the majority of the overall increase, with 10,244 approvals in the first nine months of 2013-14 compared to 6,567 approvals in 2012-13. 
  • The total number of established property approvals for the first nine months of 2013-14 is 5,755 compared to 5,101 for 2012-13.

The latest 2013-14 data also indicate that a large proportion of the growth in residential real estate approvals has been from non-resident Chinese investors.

"Some of the potential drivers could include: the depreciation in the Australian dollar, which has fallen against the renminbi during the period of investment growth; China’s domestic housing market conditions — such as deteriorating housing affordability and Chinese government restrictions on domestic house purchases brought in to curb real estate speculation; and continued growth in the size of China’s upper and middle classes."

The submission noted "Australia has not been the only destination for increased outward real estate investment from China, with Malaysia, Singapore, the United States, Canada and the United Kingdom all recipients of increased Chinese investment in recent years."

It also indicated, based on historical data, the average size of an advanced-off-the-plan development was around 170 dwellings.

"On average, around 35% of dwellings in a development have been sold to foreign persons."

The submission said data limitations made it difficult to measure the benefits of foreign investment in the real estate sector.

"Despite these difficulties, there are some general observations that can be made on the overall economic impacts of foreign investment in residential real estate.

"Foreign investment from non-residents increases the demand for, and supply of, housing stock; In the short-term, any increase in demand, is likely to put upward pressure on dwelling prices and the cost of services related to the construction sector (including, at the margin, higher wage levels).

"The extent of the price rise attributable to foreign demand is difficult to isolate from other factors. 

"This increased demand for housing stock should encourage higher levels of housing supply, albeit with a lag, with benefits for the construction industry, employment and growth.

"As dwelling completions catch up to demand, the addition of new supply would be expected to have a moderating influence on dwelling prices.

"In the medium-term, there is a likelihood of downward pressure on housing rental costs from the increase in properties available for rent, which may help address tightness in the rental market (the rental vacancy rate is very low and has averaged 2.3% over the last decade).

"Foreign purchases also increase government revenues, in the form of stamp duties and other taxes, and from the overall higher economic growth that flows from the additional investment."

Previously, Meriton's Harry Triguboff said in his submission to the inquiry that FIRB regulations should be liberalised, not further restricted.

Click to open tables in new window:

FIRB powerless to identify or stop illegal residential purchases, as Chinese investment surges

FIRB powerless to identify or stop illegal residential purchases, as Chinese investment surges

Source: Treasury submission to Parliamentary Foreign investment in residential real estate inquiry.

Tags: 
Foreign Buyers

Community Discussion

Be the first one to comment on this article
What would you like to say about this project?