Foreign investors buying Australian real estate concerns many people. People are worried about a raft of issues such as competition with citizens, inflating prices, changing demographics and a change in suburb topography.
News outlets are very good at sensationalising the negatives – that is how they make money. However, there is always a real story that may not be as interesting. Whilst there may be concerns that the public should be aware of there are other facts that should be explained also.
Competition with citizens
Before overseas investors buy in Australia, they must apply to the Foreign Investment Review Board (FIRB). The FIRB proposes several rules that foreign investors need to know before they decide to invest in Australia’s property market. In December 2015, the Australian Government introduced new legislation to foreign investors to purchase Australian property.
Under the new laws, non-resident buyers can only invest in new dwellings, off-the-plan properties under construction, or vacant land with a view to development.
Non-residents are not allowed to buy established dwellings unless they plan to demolish a dwelling and construct a new one within 4 years of the date of approval. The redevelopment must add to the housing stock for approval to be given.
The rationale is that if non-residents invest in building new properties, then job creation will follow in the construction industry, and the economy will grow. There is also the increased revenue through stamp duty taxes.
Non-residents who purchase property in Australia are required to seek approval from the Foreign Investment Review Board (FIRB), without may face severe penalties including up to $135,000 in fines, three years imprisonment, or both.
According to the Reserve Bank of Australia available data suggests that while foreign purchases change a bit from year to year, they have generally remained low as a share of the total value and number of houses turning over. Further NAB residential property survey revealed foreign buyers only accounted for 4.6 percent of the Aussie property market.
This percentage has remained low suggesting the huge surges are not primarily caused by foreign real estate investment. Also, the fact that these investors are limited to new dwellings makes this assumption incorrect. That’s not to say it has no impact it is to highlight there are other more significant reasons.
Ironically, it is local issues many of us want that inflate property prices including:
- tax and welfare settings encouraging home ownership, including first-home buyers assistance;
- exclusion of family homes from the capital gains tax, Age Pension assets test, and state land tax;
- tax settings encouraging investment in housing, particularly the capital gains tax discount and negative gearing arrangements and
- Tax settings discourage downsizing.
Unfortunately, many people don’t like change. From technology to fashion people mostly like things to stay stable. We all reminisce about what used to happen in our suburbs and lament that it was better before. This also includes who our neighbours were and how we functioned in our communities.
We tend to romanticise our memories focusing on all the good when remembering and all the bad when discussing the present. In reality, change is the only constant. Foreign investors buying real estate in Australia have always been here if we are really honest their investment offers far more good than bad.
Change in suburb topography
Not in my backyard (NIMBY). This is the term given to people that object to change in their community or suburb. Some objections are excellent – like fear of losing historic elements or no provision for increased traffic. However, we have to cater to an increased population. We need foreign investors because we need more taxes to pay for the present and future needs of Australia.
We are a brilliant democracy and our ability to challenge decisions made by the government is the reason why. However, what makes us strong is robust arguments based on facts – even if we don’t like them.