Face the facts about foreign investors

23rd Sep 2015By: Charles Tarbey

I wrote briefly in August about why I believe foreign investment is good for Australia. I thought it worthwhile however to expand on this subject due to its importance.

Century 21 is a global network and as such, we have extensive insights into developing real estate trends across the globe. One of the trends that we are able to measure is the interest in Australian property from overseas. A key way in which we are able to do this is by analysing Century 21’s website traffic. Recent statistics from our Australian website indicate that some interesting developments may be occurring.

Interest from all over the globe

In terms of growth in traffic from overseas to Century 21 Australia’s website, Russia has led the charge with an increase of 250% year-on-year for a recent eight week period. Traffic from Brazil experienced the second highest rate with a 104% increase. Coming in at third, fourth and fifth respectively were the Philippines (61%), China (34%) and Italy (26%).

Of the top ten sources of growth in traffic on the Century 21 Australia website, eight are developing economies.

It is important to remember that the above statistics are for growth in traffic. When total visitor numbers are measured, a different story is told. The top three sources of overseas traffic for our Australian website are the USA, UK and New Zealand.

With the two different measurements we see two different occurrences. The first is that Century 21 is experiencing strong growth in interest from developing countries. In fact, some of these countries were seen to grow even faster than China. The other is that we are continuing to experience strong interest from countries that have been historically linked to investment in Australian real estate.

Should we be worried about foreign investors?

Regardless of interest from overseas, opinion is still divided on whether Australians should be concerned about the level of foreign investment and what impact it has on the Australian real estate market.

Some argue that foreign investment has driven up the prices of homes, making it increasingly difficult for first time buyers to enter the market. In my opinion however, this may not be the whole truth. The available data seems to indicate that many foreign investors are more likely to purchase properties at the more expensive end of the market. First home buyers are most often interested in properties towards the less expensive end of the market. In my mind, this means that foreign investors and first time buyers may not necessarily all be competing for the same portion of the market.

Appearance versus reality

It is quite difficult to determine the total number of properties that foreign investors purchase. The Foreign Investment Review Board (FIRB) releases statistics on the number of approvals that foreign buyers receive, but this is not the number of purchases that eventuate. Some foreign investors will choose not to buy even if they do receive approval.

Foreign investors are mostly restricted to purchasing new rather than existing properties. Due to this demand for new properties, the stock of housing should increase. This is something that the Australian real estate market needs; as our population increases it’s only natural that we should need more housing.

Another key factor to consider is that foreign investment could provide support for the real estate market if there was a downturn. If the market was to experience a lack of domestic demand, foreign investors might be able to bolster the market and support prices.

When these factors are considered, it is my opinion that foreign investment in Australian real estate is in general a good thing for the market. I believe that we should move forward carefully, with appropriate oversight and try to ensure the ongoing strength of the Australian real estate market.

Charles Tarbey is the chairman and owner of Century 21 Australasia.