Property is a great conversation topic because it affects us all in some way, from our basic need for shelter through to the glamour and status of prestigious property. Therefore, property will always be a hot topic. Everybody has an opinion about it, whether in terms of its type, style, location, aspect and liveability, or the current focus - given rising prices in our three major cities Sydney, Melbourne and Brisbane - affordability.
The apparent influx of foreigners snapping up Aussie real estate is also topical. In fact, these concerns are often connected, with many media commentators claiming foreign demand for real estate is pushing up real estate prices.
The truth is somewhat different. Australia has strict rules limiting what types of residential property foreign investors can buy. Investors who are not citizens or permanent residents must seek approval from the Foreign Investment Review Board (FIRB), and at present they cannot buy existing property (except for gaining an approval to build multiple dwellings).
Further proposed changes to FIRB policy requiring foreigners to pay a fee to buy residential property, and the establishment of a National Register of foreign investment and investors are welcome developments. Finally we will be able to see some true figures about just who's buying what and where these investors are coming from, rather than speculating on the impact foreign investors are having on the market.
The affordability myth
The relation between affordability and foreign investment is unsubstantiated, given foreign buyers can only buy new property and are heavily restricted in what they can buy.
Perhaps the real issue in the broader affordability debate is whether people can buy in the suburbs they want to live in. From this point of view, a bit of perspective and worldly maturity needs to enter the debate. For example, for $US1 million ($1.3 million), I could own 15 square metres (yes, the size of a bedroom) in Monaco or an apartment just over 20 square metres in Hong Kong. And if I wanted to live in a nice condo in Downtown Manhattan, it's more than likely that I wouldn't see any change from $US4 million for a two-bedroom apartment.
The fact is, Sydney is a "rich" world city and Melbourne isn't too far behind. Great property, particularly in the more popular locations, is going to attract a premium price, just as it does in all rich cities in the developed world. We need to come to grips with this reality and resist blaming foreigners for pushing up the price of real estate in our capital cities. One must have a level head in this debate and look at the facts and figures before making judgments or claims.
The benefits
Additionally, it's important to note that foreign investments have had positive impacts on the property market.
The biggest hurdle to affordability right now is the lack of supply. Foreign investors play a critical role in helping increase the supply of new dwellings into the market. How? The first obstacle to getting a multi-unit or high-rise unit development approved for construction is finance. Often developers need to secure a 20 to 30 per cent pre-sale level to meet their bank's requirement to get the project off the ground. These are the types of properties that foreign investors buy into, and getting these pre-sales means the project will go ahead, thereby increasing supply and providing local buyers with the opportunity to buy also.
Stimulating economic development
Foreign investment into Australia is critical for our future prosperity. Each year hundreds of billions of dollars flow into Australia, supporting our local economy, our jobs market and ultimately our overall standard of living.
A couple of years back I attended a NAB economic briefing where it was stated that for every dollar spent on actual housings (meaning the buildings of dwelling) a further $10 of economic activity is generated in the economy. Think about it. The dwelling, whether it's a home or unit, generates government fees, mainly in the form of stamp duties. It generates direct jobs for trades, financiers, manufactures and sales representatives, and indirect jobs like retailers in home wares and services jobs like cleaners.
Foreigners who are choosing to buy property in Australia should be seen as a big vote of confidence for our country and the sustainability of our property market.
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