What does the future of the foreign investment “money train” for Australian property look like?
Foreign investment in Australian property has been steadily increasing over the past 5 years gaining considerable steam in the past 18 months – and why wouldn’t it?
Melbourne has been ranked as the world’s most liveable city by the Economist Intelligence Unit’s (EIU) liveability survey of 140 cities, with other Australian cities such as Adelaide, Sydney and Perth also ranked in the top 10; couple this with double digit annual property price growth in Melbourne and Sydney and it is easy to see why Australia has been a top choice for foreign investors and migrants.
But are we seeing the first signs that foreign investors may be looking to reassess their future investment strategy regarding Australian property?
Auction clearance rates are considerably down in Melbourne and Sydney, and according to Credit Suisse analysts, Chinese demand for global property could fall by 30 per cent this year on the back of the surprise devaluation of the Yuan in August this year resulting in a slightly weaker Chinese economy and a less confident Chinese consumer.
Combine this with a softening of consumer sentiment locally around the housing market and a cooling of auction clearance rates and all of a sudden you can vision what was once a gracious waltz is beginning to look a little more like the first dance at a high school formal – nervous.
So what do the numbers say?
It may still be too early to tell as the changing conditions are only now starting to play out, however according to NABs Residential Property Survey foreign buyers were still very active in the September quarter, particularly for the purchase of new stock where foreign buyers accounted for almost 1 in 5 of all new apartment purchases (19% - up from 16.1% in Q2), and around 1 in 7 of all new houses sold in the quarter (14.9% - up from 11.5% in Q2).
Purchase levels of existing stock (where restrictions on foreign investment are much tighter) were virtually unchanged with foreign purchasers making up 11.3% of all established apartment sales; and 9.5% of all established houses sold.
Victoria and Queensland were the “flavours of the quarter” for foreign buyers with market share of new property purchases in Victoria climbing to 25.2% (up from 18.1% in Q2), Queensland increasing to 17.7% (up from 12% in Q2) however Western Australia continued to soften (6.6%).
It was a similar story for purchases of established property where foreign buyers represented 15% of total sales in Victoria (up from 11.2% in Q2) and 7.6% in Queensland (up from 5.7% in Q2), with New South Wales and Western Australia softening slightly.
In terms of asset type, apartments are still by far the most invested-in residential asset at 49% of all foreign property investment, however this number is declining, down from 53% in Q1, and whilst we expect apartments will remain the most sought after residential property asset for foreign residents, in part due to their association with education and proximity to capital city CBDs, we do expect to see a further decline in investment levels particularly in Melbourne where there is likely to be a short-term oversupply issue in relation to apartments that may impact investor returns in the short term.
It is our expectation that foreign investment in Australian residential property, particularly from our Asian neighbours, will continue long into the future.
Australian property has been a strong and steady performer over a long-term and is now widely recognised around the world as an attractive haven for property investment, and the forecast “2050 housing shortage” only compounds this attraction.
And, hey, “most liveable city in the world” status doesn’t hurt either and is sure to lead to increased immigration to “the lucky country”, and lucky we are.
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