How does Foreign Investment affect the market?

Foreign Investment

Foreign investment in Australia has received considerable focus in recent years even though it has been a longstanding feature of Australia’s economy and by extension, the property market. Under Australian law, non-residents are able to purchase newly constructed residential real estate in Australia, while temporary residents, such as those in Australia for work or study, are able to purchase an established residential property for their primary residence. So, is Foreign Investment an evil element of our market?

As a smaller nation, we depend on international capital to finance the pool of investment that underpins Australia’s economic growth which could not be solely supported by domestic capital. Purchases by foreign buyers actually contribute to the expansion of housing stock which can help to keep prices and rents lower. Through increased demand and supply of, housing stock by foreigners we see direct flow on effects for the construction, property and financial industries. We see employment, wage and economic growth which improves business & consumer confidence and consumption of goods and services. This ultimately flows back into higher rents & capital values through strengthened demand for commercial real estate.

Direct foreign investment into the Australian property market also increases government revenues in the form of stamp duties and other taxes from the overall higher economic growth that flows from the additional investment. This increases funds available to support essential Australian services.

Whilst Foreign Investment remains a vital component of the health of our property market and economy, if we have too much foreign investment in one sector it will ultimately lead to increased speculation and therefore, volatility in the market. This exacerbates the risk of a boom-bust cycle as the markets have been artificially inflated by an influx of foreign capital. One only has to look at the Melbourne, Sydney, Brisbane and Perth apartment markets through 2016-2017 where a huge spike in supply levels occurred on the back of speculation of continued foreign & local demand.

A significant spike in the supply of new housing stock which outstrips demand will place downward pressure on prices and rents – which can be taken as either a positive or negative, depending if you’re looking from the purchaser (affordability) angle or from the property owner angle.

For all the noise around Foreign Investment, it is important to realise that foreign buyers make up a very small proportion percentage of the residential property market. According to a range of sources, it seems that, nationally, purchases by foreign buyers equates to around 15% of new construction, or about 5 per cent of total housing sales. The share of new construction purchases is highest in Melbourne, Sydney with Brisbane a distant third.



Heath Bedford
Director Advisory - Performance Property Advisory

Using a research driven methodology and an extensive network of contacts in real estate, Heath works with professional clients and their financial advisers to establish long-term strategies for wealth creation with property as the primary vehicle. Heath has a thorough knowledge of the Australian property markets, focusing on acquiring undervalued properties with genuine strong capital growth and rental return potential.