FIRB blames fees for $47bn drop in foreign real estate sales

FIRB blames fees for $47bn drop in foreign real estate sales

Tue, 29/05/2018 - 13:55

Melbourne was the most popular city among Chinese residential purchasers, according to FIRB data. Photo: Tim McCartney

Australia’s Foreign Investment Review Board has blamed the introduction of application fees for a substantial drop in the number and value of residential real estate applications, including a $16.6 billion drop value of sales to Chinese investors.

FIRB data for the 2016-17 financial year showed the total value of approved offshore investment fell to $192.9 billion, from $247.9 billion in the previous financial year.

Residential real estate investment fell from $72 billion to $25 billion, the FIRB said.

China was the leading country for property purchases, however, the value of sales to Chinese investors plunged $16.6 billion to $15.3 billion.

Nearly three quarters of all offshore purchases of real estate occurred in Victoria and New South Wales, reflecting strong demand for properties in Melbourne and Sydney.

FIRB chairman David Irvine said the biggest contributing factor to the drop was the introduction of application fees in late 2015, while also acknowledging that Chinese capital outflow controls, weaker market conditions and the introduction of increased taxes in some states had made a negative impact.

“Prior to the introduction of fees in December 2015, individuals often made several applications earlier in the process when considering multiple properties, even though they might have only ended up purchasing a single property,” the FIRB report said.

“This suggests that the resulting reduction in approvals may not imply a corresponding a reduction in actual investment in residential real estate.

“That is, the actual decline is likely to be lower than implied by the data.”

Chief executive of China-headquartered global property portal, Carrie Law, said the two halves of the financial year were like “night and day” for Chinese investment.

“In the second half of 2016, Chinese investment were investing in Australian real estate at an almost irrational pace,” Ms Law said.

“It was like money falling from heaven for vendors and developers.

“In early 2017, capital controls, financing restrictions, and foreign buyer taxes reduced Chinese investment to more reasonable levels. 

“Since November 2017, we seem to have entered a period of more sustainable long-term growth.

“Chinese buying enquiries for Australian property in March were 5.7 per cent higher than the month before and in April they were 22.3 per cent higher.”

Overall, Chinese investment in Australia fell by $8.6 billion, compared to the previous year, but the country remained the biggest source of overseas investment at $38.9 billion.

“China’s capital controls have worked, Ms Law said.

“Today, China’s foreign reserves are up, the Yuan is stronger, the flow of money out of the country has been reduced, and fears of a devaluation have virtually disappeared.

“But they have succeeded without having to make it impossible for ordinary Chinese families to buy property overseas.”

Ms Law said it appeared the investment environment was changing in China, with the Chinese government hinting it may unwind capital controls rather than further tighten them

“Buyers are beginning to anticipate a time, perhaps this year, when investing overseas again becomes easier. 

“FT Confidential Research reports that a majority of Chinese households intend to increase their offshore investments in the coming two years, with real estate the asset class most favoured by outbound investors.”

Outside of real estate, there was $7.3 billion of Chinese investment into mineral exploration and development, $7.4 billion in manufacturing, electricity and gas, while $6.4 billion was invested in the services sector.

Chinese investors also funnelled $2.2 billion into Australia’s agricultural sector in 2016-17, the report said.