Foreign investment in Aussie property climbs off the canvas

An uptick in foreign investment in Australian real estate has been largely driven by overseas interest in Victorian property. 

While Melbourne’s property market, in particular the inner city and apartment markets, were the among the hardest hit segments of the national property market over the 18 months of the pandemic, the state now accounts for 43 per cent of foreign buyers.

While international travel to and from Australia is out of reach, foreign investors seeking capital gains and a safe haven for their funds are returning to the local market. 

The latest Foreign Investment Review Board annual report shows foreign investment into Australian residential real estate jumped by 15.5 per cent to $17.1 billion.

This was the highest level in three years but remains almost half of what it was at the peak of foreign investment in the 2016-17 financial year, when it tipped over $30 billion.

The report revealed the increased inflow of investment dollars across established and new dwellings came about despite a decline in the actual number foreign residential real estate investment transactions.

The number of foreign investment approvals for existing dwellings has fallen from a peak of 5,876 in 2015-16 to 1,101 in 2019-20. By contrast, the value of existing dwellings approved fell from a peak of $7.3 billion in 2015-16 to a trough of $1.7 billion in 2018-19, before rebounding to $4.5 billion in 2019-20.

The number of foreign investment approvals for new dwellings has collapsed from a peak of 26,253 in 2015-16 to 3,899 in 2019-20.

Chinese returning

Trade and diplomatic ties between Australia and China have been strained but mainland Chinese investors have made a tentative return to Australian property markets. 

Mainland Chinese investment in Australian real estate surged by 16 per cent from $6.1 billion to $7.1 billion, while Hong Kong contributed another $2.4 billion.

The United States leads international buyer demand for property with $13 billion worth of investment, followed by Singapore with $9.5 billion and mainland China in third place.

Executive chairman of Asia-wide real estate tech company Juwai IQI, Georg Chmiel, said only the closed borders and the inability of foreign students to reside in Australia is holding back foreign residential investment.

"Global cross-border investment — not just to Australia — plummeted in the first half of 2020 to half of its level of one year earlier, according to the Organisation for Economic Co-operation and Development but amid the global gloom Australia did relatively well,” Mr Chmiel said.

“Investment into Australia declined by only slightly more than total global cross-border investment and when it comes to cross-border real estate buyers, Australia is now more attractive than ever.”

Other significant Asian buyer groups include Malaysia, whose buyers were approved to purchase $557 million of residential and commercial real estate. Buyers from Thailand were approved to make $1.4 billion of investment and from the Philippines $16 million.

Buyers from Japan and South Korea did not make any significant real estate investments during the year, Mr Chmiel said.

“That's a big change from the prior year and represented more than $4 billion of lost investments.”

European interest in Australian real estate also rose, with Germany accounting for $3.68 billion in investment and France $2.4 billion. Canada was the fifth most popular source country for investment with $3.3 billion.

Around the country

Victoria attracted a major share of foreign investment in real estate, with 3000 of the 7056 approvals, followed by NSW with 1329 approvals and Queensland with 1311 (or 19 per cent of the total).

“This is a tremendous showing by Queensland, which is rapidly becoming a top destination for foreign investment,” Mr Chmiel said.

“Queensland used to be a distant second, but now it's tied for second, which can be attributed to the advantage of lifestyle, less congestion and lower prices. 

“New South Wales struggles with high home prices and even foreign buyers are sensitive to the unaffordability of many suburbs.”

The states benefiting most from foreign investment in new developments were Victoria with 33 per cent, Queensland (15.5 per cent) and New South Wales (7 per cent). Western Australia attracted five per cent of new development foreign investment approvals.

Mr Chmiel said foreign investment was helping to create housing for the rental market rather than taking property off the market.

“Not many foreigners are leaving their Australian investments empty, with just 109 foreign-owned homes anywhere in the country deemed to be unoccupied during the period.”

Commercial real estate saw a drop in foreign buyer investment with $38.8 billion in investment, down from $73 billion a year earlier.