Post to SinFongChanRE.wix on 14/1/2018 at 3:46 PM
Commenting on “Foreign buyers are dropping out of the Australian property race”
https://www.domain.com.au/money-markets/foreign-buyers-are-dropping-out-of-the-australian-property-race-20180111-h0gxye/
When one talks about foreign property investor in Australia, they generally refer to the Chinese investors from mainland China. Knight Frank reported that Chinese companies spent $2.4 billion buying 38 per cent of all the residential property development sites sold in Australia in 2016.
Australia ranks second only after US in terms of property investment by the Chinese. The other leading places they invest in are Hong Kong and Canada.
The decline in Chinese investing in Australian property is caused by three reasons.
According to Morgan Stanley, in the first half of 2017, the Chinese pulled back 84% of their overseas property investments globally that were attracting Chinese cash. The decline does not only happen in Australia, but also in many cities around the world.
State or provincial (such as Canadaian) taxes have a great negative impact on property investment. Foreign investors shift their target from one place to another that will give more attractive returns.
In Canada, Toronto and Montreal have surpassed Vancouver as the Canadian cities that Chinese homebuyers are most interested in. Vancouver — once the capital of Chinese property investment in Canada — is pushed to third place. The reason behind is due to British Columbia's introduction of a 15% foreign buyer's tax in Greater Vancouver in 2017. Before then, home prices in British Columbia rose almost 18% in 2016.
Back in February 2017, according to the Seattle Times, Seattle of Washington state was the No. 1 U.S. market for Chinese homebuyers. Not unlike Australia, the median home price in Seattle had surged to the extent that first time homebuyers, families, low income earners, and renters searching for a primary residence were quickly becoming priced out of the market.
Not long after, Washington state reported that foreign investment was down 24% compared with 2016, and fell out of the top 10 states attracting foreign homebuyers. This is in contrast with foreign home sales across the country which are up significantly in the past year.
When China began allowing citizens to take large amounts of money out of the country in 2010, Chinese investment in foreign real estate exploded with a bang. I predicted accurately that the real estate would peak at the end of 2009, but things just went haywire in 2010 after the Chinese money floodgate opened unexpectedly.
Even back in 2009, it used to take more than a week for Foreign Investment Review Board FIRB to approve an application, and for an urgent case like an auction, a three-day turnaround time was a treat. Things changed, and there were insufficient checking and monitoring by FIRB, and some estate agents and foreign investors were in breach of the laws, knowingly.
It is inexcusable for many real estate practitioners to say that the new laws are the deterrent for foreign investment; what they do not want to know is that some of the so called new laws were in existence before.
In May 2015, Joe Hockey, the former treasurer, transferred all residential real estate functions from Treasury to the Australian Taxation Office (ATO). The ATO has the ability to cross reference its own data with third party sources, including FIRB, immigration, AUSTRAC and state and territory land title offices. The ATO has the capacity to cover more than 600 million transactions annually.
Those who break the laws could longer run away as easily as before. Third parties who knowingly assist a foreign investor to breach the rules will also be subject to civil and criminal penalties, including fines of $45,000 for individuals and $225,000 for companies.
The new laws also ensure foreign residents who unlawfully purchased established residential property would face increased criminal penalties up to $127,500 or three years imprisonment for individuals and up to $637,500 for companies.
Since over 85% of the foreign investment in property comes from the Chinese investors, any decline should not be taken lightly.
Foreign investment leads to injection of money to Australian economy, essential for creating jobs in the Australian construction sector and increasing the property supply; something that both Melbourne and Sydney need. The taxes from real estate transactions have increase the governments' coffers thus help to improve the budget bottom line, a welcome relieve to new infrastructure and other services.
There is a loophole about property investment by foreigners. Australian law allows foreigners who are on a temporary visa to buy established property. Since foreign students are classified as temporary residents, and there are 343,000 students visas issued in 2016-17, this potentially creates unnecessary competition by foreigners against local Australians for the established residential property market, thus making property less affordable for Australians.
In 2018, New Zealand bans all foreigners from buying established homes, joining a growing list of nations trying to make property more affordable for New Zalanders. Australia is yet to follow.
As for the higher end of the real estate market, the outlook may not optimistic, as it is directly proportionate to the decline in Chinese investment.
Thank you for reading
Commenting on “Foreign buyers are dropping out of the Australian property race”
https://www.domain.com.au/money-markets/foreign-buyers-are-dropping-out-of-the-australian-property-race-20180111-h0gxye/
When one talks about foreign property investor in Australia, they generally refer to the Chinese investors from mainland China. Knight Frank reported that Chinese companies spent $2.4 billion buying 38 per cent of all the residential property development sites sold in Australia in 2016.
Australia ranks second only after US in terms of property investment by the Chinese. The other leading places they invest in are Hong Kong and Canada.
The decline in Chinese investing in Australian property is caused by three reasons.
- Australian Federal Government made some drastic changes to the Foreign Ownership Laws
- Various state governments imposed tax hikes targeting at the foreign property investors
- Chinese government put the brakes on Chinese companies pouring big money into overseas property development, and further restricted how individuals transfer money abroad.
According to Morgan Stanley, in the first half of 2017, the Chinese pulled back 84% of their overseas property investments globally that were attracting Chinese cash. The decline does not only happen in Australia, but also in many cities around the world.
State or provincial (such as Canadaian) taxes have a great negative impact on property investment. Foreign investors shift their target from one place to another that will give more attractive returns.
In Canada, Toronto and Montreal have surpassed Vancouver as the Canadian cities that Chinese homebuyers are most interested in. Vancouver — once the capital of Chinese property investment in Canada — is pushed to third place. The reason behind is due to British Columbia's introduction of a 15% foreign buyer's tax in Greater Vancouver in 2017. Before then, home prices in British Columbia rose almost 18% in 2016.
Back in February 2017, according to the Seattle Times, Seattle of Washington state was the No. 1 U.S. market for Chinese homebuyers. Not unlike Australia, the median home price in Seattle had surged to the extent that first time homebuyers, families, low income earners, and renters searching for a primary residence were quickly becoming priced out of the market.
Not long after, Washington state reported that foreign investment was down 24% compared with 2016, and fell out of the top 10 states attracting foreign homebuyers. This is in contrast with foreign home sales across the country which are up significantly in the past year.
When China began allowing citizens to take large amounts of money out of the country in 2010, Chinese investment in foreign real estate exploded with a bang. I predicted accurately that the real estate would peak at the end of 2009, but things just went haywire in 2010 after the Chinese money floodgate opened unexpectedly.
Even back in 2009, it used to take more than a week for Foreign Investment Review Board FIRB to approve an application, and for an urgent case like an auction, a three-day turnaround time was a treat. Things changed, and there were insufficient checking and monitoring by FIRB, and some estate agents and foreign investors were in breach of the laws, knowingly.
It is inexcusable for many real estate practitioners to say that the new laws are the deterrent for foreign investment; what they do not want to know is that some of the so called new laws were in existence before.
In May 2015, Joe Hockey, the former treasurer, transferred all residential real estate functions from Treasury to the Australian Taxation Office (ATO). The ATO has the ability to cross reference its own data with third party sources, including FIRB, immigration, AUSTRAC and state and territory land title offices. The ATO has the capacity to cover more than 600 million transactions annually.
Those who break the laws could longer run away as easily as before. Third parties who knowingly assist a foreign investor to breach the rules will also be subject to civil and criminal penalties, including fines of $45,000 for individuals and $225,000 for companies.
The new laws also ensure foreign residents who unlawfully purchased established residential property would face increased criminal penalties up to $127,500 or three years imprisonment for individuals and up to $637,500 for companies.
Since over 85% of the foreign investment in property comes from the Chinese investors, any decline should not be taken lightly.
Foreign investment leads to injection of money to Australian economy, essential for creating jobs in the Australian construction sector and increasing the property supply; something that both Melbourne and Sydney need. The taxes from real estate transactions have increase the governments' coffers thus help to improve the budget bottom line, a welcome relieve to new infrastructure and other services.
There is a loophole about property investment by foreigners. Australian law allows foreigners who are on a temporary visa to buy established property. Since foreign students are classified as temporary residents, and there are 343,000 students visas issued in 2016-17, this potentially creates unnecessary competition by foreigners against local Australians for the established residential property market, thus making property less affordable for Australians.
In 2018, New Zealand bans all foreigners from buying established homes, joining a growing list of nations trying to make property more affordable for New Zalanders. Australia is yet to follow.
As for the higher end of the real estate market, the outlook may not optimistic, as it is directly proportionate to the decline in Chinese investment.
Thank you for reading
