Foreign Investors Heading Offshore

Foreign interest in Australian property is expected to dip dramatically over the course of 2018 in response to an increase in taxes, tighter lending restrictions and a slowing property market.

Overseas property investors have become a significant component of the Australian real estate market, accounting for a whopping 25% of residential properties in NSW last year.

Investment bank UBS has estimated that 78% of foreign property purchases over the past five years were conducted by Chinese investors.

Around the world, nations have strengthened regulations regarding foreign real estate investment and a pattern seems to be emerging. With the fluctuations of currency, UBS have seen Chinese investors move from London, to Australia’s east coast capital cities and predict that Bangkok will be the next hotspot.

UBS’s head of global property research, Kim Wright, said Chinese investors are very “currency aware” and were now looking outside the Australian real estate market.

“Over the last two years we have seen Asian buying of Australian property, specifically Sydney, Melbourne and Brisbane, that’s been very strong… It looks like that has started to fade over the past six months.”

“I think it’s the combination of factors. Prices have been very strong in Australia so there is now a discussion that the cycle has started to peak and there’s the tax changes that have come through along with the tax controls”.

The Property Council of Australia (PCA) chief executive Ken Morrison said he warned governments about overreaching.

"If we continue to see government put up taxes on foreign purchasers then this trend will continue, and that's a danger because foreign buyers have formed an important role to encourage housing construction activity in Australia."

The May budget set in 2017 took aim at foreign investors, removing capital gains tax exemptions and imposing a 50% ownership cap for new residential developments.

States have also set foreign investors in their sights with the introduction of new state specific taxes. Victoria, for instance, has introduced its own ‘Ghost Tax’ targeting properties left vacant – they are the only state to do so.

This could mean good news for Australian resident first home buyers (FHB), who are seeing an increase in their share of the property market. The fourth quarter of 2017 saw FHBs achieve the highest share level since 2011. Some speculate, however, that local residents won’t be able to make up the difference, leaving way for a potential real estate surplus.

The predicted exodus of foreign investors doesn’t equate to a housing market recession. There are still many opportunities for developers to reap rewards with intelligent projects. Read our article on the potential real estate surplus and what it means for you here.