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Housing Un-Affordability? Blame The Foreigners
  • After many months of feverish discussion about the drivers of the Australian property market, Federal Treasurer Joe Hockey has proposed a remedy: tax the foreigners! Because, as he says, ‘part of the Australian dream is owning your own home’, but with the mean national price at $571,500, property ownership is already more of a dream than a reality for many Australians. If this appears a populist response to a hot topic, you may be right. All available evidence points to foreign investors playing a minimal role in price hikes throughout the country and in fact serve to increase housing stock levels.


Out for the count

  • On the 25th of February the Coalition Government released an options paper entitledStrengthening Australia’s Foreign Investment Framework. The paper seeks feedback on a number of proposed changes to the Foreign Investment Review Framework, the most contentious of which was the proposed fee for foreign buyers seeking to purchase properties in Australia.
  • The proposal is this: an application fee for foreign investors to obtain approval to buy Australia property. The fee would commence at $5,000 for properties under $1 million, and increase by $10,000 for every additional million. The Treasurer has said these proposed fees are intended to ‘even up the playing field’ so that first home buyers are not outbid by foreign investment. He is right on one measure: first home buyers have definitely been pushed out of the market. As the graph below shows with verve, first home buyer activity took an unnatural dive following the GFC and has been heading downhill ever since.



  • The most recent ABS data indicates that the number of first home buyer commitments as a percentage of total owner occupier housing finance commitments fell to 14.5% in December 2014 from 14.6% in November 2014, the lowest level since 2004. With wages effectively stagnant and house prices at a national mean of $571,500, it is unlikely that first home buyers will be rushing into the market any time soon.


Right on one point, wrong on the other.

  • However Treasurer Hockey’s comments seem to miss the point: young home buyers are not being outbid by cashed up foreigners, but rather cashed up Australian baby boomers. As the graph below shows, property investment has grown rapidly over the last two years and after many months of further investment, RPData indicates that investors reached their highest value ($12.6 billion) and proportion of loan commitments (50.6%) on record in February 2015. While the graph does not differentiate between foreign and domestic investors it is instructive as to who is generating the heat.



Anecdote rather than data

  • So what percentage of the market do foreign investors hold? No one really knows and even Treasurer Hockey says a lot is anecdotal. The limited data that is available paints a very different picture than what the government is presenting.
  • As the graphs below show foreign investment is a small percentage of the overall value and number of the market and even these low figures could be inflated as they represent applications for purchase, rather than actual purchases (with FIRB applications being less than 8% of dwelling turnover).



  • The total value of approved foreign investment for the first nine months of 2013-14 was an estimated $24.8 billion. This was a sizeable 44% increase from 2012-13, however this reflected an increased number of proposals (15,999 from 4,331). Importantly these increases were almost wholly attributable to foreign investment in new property (10,244 from 6,567) and only a small increase for established property (5,755 from 5,101).
  • So, there are definitely more foreigners involved in the Australian property market but this does not mean they are pushing first home buyers out of the market. Available data indicates that first home buyers generally purchase established rather than new dwellings and at a much cheaper price point than the national average and foreign buyers. Because of this the RBA says it is unlikely foreign investment is the main driver behind the recent increase in prices. They further suggest that ‘on balance’ foreign residential demand has probably resulted in an increase in the supply of dwellings in Australia.


Not a solution

  • The Property Council of Australia, Real Estate Institute of Australia, CBRE have come out in clear rejection of the proposal. CBRE Chairman Justin Brown sardonically said: “If the government is trying to curb the foreign investment market and in turn the construction of new dwellings, then this is the way to do it.”
  • Treasurer Hockey attempted to hose down these concerns by suggesting that the additional $5,000 is ‘not going to make a discernible difference’ to the investment decisions of foreigners. But rather than quelling fears, this simply calls into question the rationale for the fee in the first place.
  • If introduced, Australia will largely become an anomaly. Neither the US, Canada or Japan have fees for foreign buyers, though Hong Kong and Singapore have stamp duty of 15% for foreigners and a special stamp duty if properties are sold within a short time period (4-16% and 10-20%, respectively).



  • The introduction of such fees will have little discernible impact on the rocketing prices of property in Sydney and Melbourne because not only are foreign buyers a small percentage of the established dwelling market, they purchase at a level already out of reach of first home buyers. In short: something should be done to address the rapidly growing affordability issue, but a $5,000 fee for foreign purchasers is more about newspaper headlines and leadership issues than actually solving a problem.

This update does not constitute financial advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek professional advice before acting or relying on any of the content.


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