Foreign investors turning away from Australia, towards US, UK

As the United Kingdom and United States experience a boom in foreign property investment, buyers from Asia and elsewhere are increasingly avoiding Australia.

Stifled by the pandemic and comparatively unwelcoming to foreign visitors, international investors, particularly from Asia, have largely turned to other education and business hubs around the world.

According to new data from the Foreign Investment Review Board, spending sank by $1.5 billion in the 2019-20 financial year to a total of $6 billion.

The number of total residential property transactions by foreign buyers fell 20 per cent over the period compared to the prior financial year to 7,425 sales.

Any signs the decline was part of an international trend is dispelled by large growth in Australia’s English-speaking competitors for students, tourists and businesspeople.

Foreign ownership of properties in England and Wales has trebled since 2010 from 88,000 to nearly 250,000, according to analysis by the Centre for Public Data.

Anna Powell-Smith, director of the Centre for Public Data in the UK, was reported in British media as saying the expansion there was extending beyond London, with a notable growth in titles registered in northern cities like Liverpool, Manchester, Salford and Leeds.

“There are also concerns about the impact overseas buyers are having on the affordability of housing, with second homes often scooped up as an asset.”

In the US, the property market is undergoing a flood of foreign property investment.

Unlike most of Australia, the U.S. has lifted the travel ban on about 33 countries for vaccinated visitors, easing restrictions that prevented most foreign real-estate buyers from entering the country to view and buy properties.

Foreign buyers spent $267 billion on US real-estate in 2018 and $183 billion in 2019, before the pandemic, according to the National Association of Realtors, but sales data from recent months suggests the wave of overseas buyers could generate tens of billions of dollars in added sales.

Dave Platter, Global Director of Public Relations and Communications at Juwai IQI Holdings, attributed the difference between Australia and the US and UK as being wholly down to border controls.

“Fewer visitors equates to less investment,” he told Australian Property Investor Magazine.

“The US and UK have been more welcoming of visitors, whether it's students, businesses or tourists, and with fewer travel restrictions they’ve been able to capitalise on the pent-up demand from foreign property buyers,” he said.

Juwai IQI Co-Founder and Group Managing Director Daniel Ho said foreigners buy four times more Australian property than they sell.

“These are not speculative buyers who flip the homes - in many cases, they are buying property to pass on to the next generation.

“The beginning of the COVID pandemic cut foreign buying in 2020, but foreign buyers still want to purchase Australian property.

“In the second half of 2022, we expect stabilisation and even a modest uptick in foreign buying.

“Foreign students are returning, international travel is restarting, and inbound immigration is rebooting.

“Foreign buying will have multiple drivers pushing transactions up by the end of this year.”

Wealth divide

As well as transaction volumes, another differentiator between Australia and the US and UK is type of investor looking to each country.

Overseas buyers have benefitted from massive wealth creation during the pandemic, with rising asset prices and stock markets. Flush with cash, the global wealthy are now looking for trophy assets.

Cities like London, New York, Los Angeles and Miami, which have always been hubs for the global rich, are still seen as safe investments despite the ups and downs of the pandemic.

The latest statistics show that the biggest spenders in UK property from overseas are from Hong Kong, with many of them wealthy buyers and others seeking a new home in the wake of China’s crackdown on the city.

In Australia, however, around four out of five purchases were worth less than $1 million and continues to rise despite prices soaring in the same time period.

The percentage of sale transactions for residential real estate with values under $1m has increased from 80 per cent in 2017-2018 to 85 per cent in 2019-2020.

State by state

As the Australian states contend with border controls independently, 2022 will present an interesting case study in how foreign buyers react to the policies of the various state governments.

Australia’s east coast is the centre of all the international attention.

According to the FIRB data, Victoria, New South Wales and Queensland represent 97 per cent of all sale transactions, making up 98 per cent of the value of sale transactions for the reporting period. This had, however, eased from around 99 per cent.

Newly built houses and units were the most sought-after properties, accounting for 68 per cent of the transactions. Vacant land accounted for 18 per cent, while existing properties represented 14 per cent.

In the more prestige markets, NSW posted the largest number of seven-digit deals thanks to the more expensive Sydney market.

Lily Chong, the Perth-based Director of IQI Australia, said the west had been hindered by watertight border controls but higher rent yields, lower prices and, in some cases, a perception of greater safety, were beginning to attract more buyers.

“Around half of the people making enquiries from, mostly, Hong Kong, Malaysia and Singapore, are up to speed on the latest news around shifting border timelines but the other half are sophisticated investors focused purely on yields, prices and returns,” Ms Chong said.

Peter Maloney, managing director of real estate technology company Dye & Durham, said WA property prices may increase in the wake of a potential border opening, representing a buying opportunity for overseas and other investors.

“Prices may increase when the Western Australian borders reopen to the rest of Australia, enabling locked out residents return to their home state and domestic and international population migration into Western Australia resumes, all of which will provide for a more competitive market,” he said.

“The hard border closure in WA is having an impact on the growth in values of residential property largely due to a cap on demand as a result of a lack of free-flowing migration. 

“New buyers just haven’t been able to get into WA to drive up demand and this is evident in the latest growth rates. 

“Slower growth rates compared to the eastern seaboard are likely to continue if lockouts are extended and to see the growth we have seen elsewhere, interstate and indeed international migration needs to be taking place.”