As one of less than 10 AAA rated economies in the world, Australia benefits from high levels of foreign investment. We have an enviable reputation for stable capital growth, a highly regarded economy and the certainty associated with rule of law. Australia’s Free Trade Agreements are likely to boost acquisitions of real estate across the eastern seaboard as the nation positions itself to embrace Asian investment in larger volumes, with legislation allowing offshore investors to buy new and existing developments.
Residential property in Sydney and Melbourne, and Brisbane to a growing extent, has experienced a spike in interest from offshore investors. Foreign Investment Review Board (FIRB) data shows that the total number of approvals for new residential dwellings in Australia increased by over 300% from 2006-7 to 2012-13. Not one proposal was rejected by the Board in 2012-13.
In February the FIRB had approved $24.8 billion foreign investment in residential property for the first nine months of this financial – mostly in Melbourne and Sydney.
Currently 68% of total proposed foreign residential investment is in Victoria (38%) and NSW (30%). Queensland accounts for 15%.
The foreign demand for Australian real estate is driven by China, with almost $6 billion in FIRB approvals.
A study by broker CLSA found that Australia ranks second only to Canada as the preferred place for wealthy Chinese wanting to migrate. The report suggests that as many as 10 million of the 70 million Chinese in the top income bracket would be willing to migrate to Australia if allowed.
In another 2014 study, Credit Suisse calculated the Chinese are buying 18% of new dwelling supply in NSW, 14% in Victoria, and 7% in Queensland.
In response to the magnitude of investment, the Commonwealth Government has created new visa categories that are designed to facilitate permanent migration by wealthy households. The significant investor visa program, started in 2012, grants permanent residency to foreigners who invest a minimum of $5 million in prescribed assets after four years. As of July 1, 2014, 286 significant investor visas were granted from a total of 1,027 applications, bringing $1.4 billion worth of foreign investment. Most of the interest in these visa applications came from China.
A premium investor visa, granting permanent residency to applicants investing $15 million in certain assets after one year, offers a more expeditious route for immigration.
The Federal Government recently proposed a new Foreign Investors Fee to be imposed by the ATO. It will include a $5,000 application fee for property purchases under $1 million, rising to $10,000 for each additional million. The proposal has met resistance from industry which claims it will deter foreign investment.
Asian investment is showing clear signs of moving north to Brisbane from the hotspots of Sydney and Melbourne. Brisbane prices are cheaper and rental yields stronger than in the southern capitals. Brisbane has experienced only modest growth in recent years while Melbourne and Sydney experienced strong increases. Investors are aware that Brisbane is a candidate for a new phase of activity.
Brisbane features a median yield rate of approximately 5%, Melbourne 4.2% and Sydney 4.1%. Brisbane’s median house price is almost half of Sydney’s ($840,000) and significantly less than Melbourne’s ($615,068). Brisbane’s median unit price is just $357,466, also below Sydney’s ($580,861) and Melbourne’s ($423,169).
Anecdotal evidence suggests that 70-80% of new dwelling projects in Brisbane and the Gold Coast are being sold to investors. Overseas investors, predominately Asian, account for 20-30% of these sales.
For Brisbane to become more attractive to international investors, consideration should be given towards strategic investment in high profile sporting, cultural and political events such as the G20 Summit and Asian Cup football.