Monthly Market Report

August 2017
Foreign real estate investment is a hot topic in the Australian property arena and it will be interesting to see how the tightened rules delivered in May’s federal budget affect the market. In a bid to address inflated property prices and housing affordability, the government announced stronger rules for foreign investors.

It introduced a 50 percent cap on foreign ownership in new developments along with an annual charge on foreign owners who buy residential property and leave it vacant. It also tightened the foreign investor tax integrity rules to reduce avoidance of capital gains tax on Australian property.

In the year to May 2017 there was a $55 billion increase in all approved foreign investment in Australia, to $248 billion, "predominantly driven by increased investment in the real estate sector" according to FIRB chairman Brian Wilson. Of that, Chinese buyers led the way, investing $31.9 billion in Australian real estate.

Not surprisingly however, what followed the budget were reports that Asian investors are being scared off from buying Australian real estate. While these new foreign investment rules and tightening currency controls in China may affect levels of investment, there are factors at play that ensure Australian real estate remains attractive to Asian investors.

Topping the list are our stable financial system, a well-regulated land title system and a buoyant real estate market. Investors also find our relatively higher capital gains and rental yields in major cities, as well as lower deposit requirements, quite appealing. Chinese property law restrictions and its own housing affordability issues also play a role in pushing Chinese investors to overseas markets. So while the government undertakes measures to ensure domestic buyers can enter the real estate market, foreign investment will always play a significant role.