• 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.

 

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<p> </p>
<ul>
<li>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.</li>
</ul>
<p> </p>
<h2>Right on one point, wrong on the other.</h2>
<ul>
<li>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.</li>
</ul>
<p> </p>
<p><img decoding=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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