FIRB Property Investment Trends - Development
Picking up from last week, the FIRB Annual Report 2017-18 includes this comment; ‘Australia’s foreign investment policy encourages foreign investment in the residential real estate sector, which is expected to help build new supply’.
However, as already noted, the FIRB’s annual report 2017-18 shows a declining trend for real estate. In 2016-17 foreign investment into residential real estate was $30.6b and in 2017-18 that feel to just $12.5b. The commercial real estate sector also fell from $43.7b in 2016-17 to $39.5b in 2017-18.
The decline in approvals for residential real estate foreign investment peaked in 2015-16 (in both numbers and dollar value) when there were 40,149 approvals valued at $72.4b, by 2017-18 activity had dropped to only 10,036 approvals valued at $12.5b. These figures relate to the purchase of both new and existing residential properties however, there’s also been a decline in foreign development investment.
Development Investment also Declines
FIRB figures show that during 2017-18, 8,421 approvals for development were given. There was a 62% decline in the approvals compared with 2016-17. The decline may also have reflected a rule change that allowed approvals to be granted for a number of years whereas, prior to December 2015 the limit was 12 months.
Residential development approvals fell to 81% in 2017-18 compared to 90% in 2016-17. However, the majority of approvals continue to be for development.
The decline in approvals does also holds the potential to further impact falling supply levels in 2020-21 when the drop in development approvals by foreign investors could well see less new projects come to market.
The FIRB trends for approvals shows very big variations across the figures for 2015-16 and 2017-18. With the biggest variance among the for development approvals. Approvals for existing residential fell from 5,877 on 2015-16 to a much lower 1,615 in 2017-18.
For development over the same period, three sectors are covered in the FIRB figures and they also show declining approvals:
- Vacant land 7,005 (2015-16) declined to 2,399 (2017-18)
- New dwellings 26,253 (2015-16) declined to 5,694 (2017-18)
- Redevelopment 34,264 (2015-16) declined to 8,421 (2017-18)
Total residential figures went from 40,141 approvals (2015-16) to 10,036 (2017-18), NSW lead the numbers in 2017-18 with 107 redevelopment approvals followed by Victoria with 94 however, the figures are very different for vacant land. Here Victoria had 1,517 approvals and NSW only 206 which was also less than Queensland’s tally of 451.
From 2021, there will be a new register of the beneficial owners of overseas entities that own or wish to buy or let UK property. Such overseas entities will be required to be registered with the details of their “registrable beneficial owners”, determined on the same basis as under the Persons of Significant Control regime introduced in 2016 and so a direct comparison with our detailed figures is not practical.
None the less the impact of already introduced additional regulatory and tax changes has for the UK been stated as “business as usual”, 2018 saw record levels of foreign investment into London. Lead by Asian investors accounting for the largest percentage with £3.6bn in property buys. South Korea also had a significant increase on 2017 levels. Outbound investment from mainland China did however slow in the face of tighter controls on foreign property acquisitions.
Vancouver, which was often compared with Sydney and Melbourne in attracting foreign buyers has joined some of the other major cities around the world with housing prices deflating.
Apartment sales in Vancouver in March 2018 have plunged 35%, down 45% from March 2017 and down 63% from March 2016, to hit the lowest level in 18 years. A big increase of supply has put downward pressure on home prices, particularly at the higher end where Chinese capital flows have hit the brakes. And like Australia foreign buyers in Canada now face a raft of additional taxes and levies.
Statistics New Zealand recently reported that the percentage of residential properties sold to overseas buyers plunged in the March quarter. This was the first full quarter following NZ’s foreign buyer ban and transactions fell by 81% in the March 2019 quarter compared with the same quarter 2018.
There were only 204 home transfers in the March 2019 quarter, down from 1,083 in the March 2018 quarter, falling to only a total 3.5% of transactions over the same period.
Many governments, ours included, have been happy to hammer foreign buyers of residential property with a combination of higher buyer duties and surcharges, these have proved according to a recent article in the Australian Review, ‘wildly effective in dampening demand’ (in Vancouver). However, the same impact has been seen in many cities and jurisdictions.
Most of these changes were ahead of the ‘trade-wars’ we now see taking place in global markets. The falls in home-buyer and investor activity have been huge and questions still remain as to if these measures were well-founded or just knee-jerk reactions that may not really work to either improve supply or affordability.
Residential property markets do not look to have gained any real or long-term advantage that can be attributed to restricting many foreign buyers. And the wider economy may well suffer as supply may even fall and development and construction slow.