Foreign investment providing much needed growth

Investment in both commercial and residential property has picked up recently, spurring on new residential construction and giving the commercial real estate sector a welcome cash flow injection. With the proportion of foreign investors in both the Australian and New Zealand real estate markets increasing, it's no surprise that both of these economies are enjoying a much-deserved boost in productivity.

Foreign investment in Australia's residential sector

There have been fears that cashed-up foreign investors could price average home buyers out of the market, however it appears that increased investment could be keeping a lid on prices by stimulating new building. The addition of new stock to the housing market addresses a serious supply issue, which was flagged by the Reserve Bank of Australia in its Financial Stability Review, released in September.

Foreign investors have increased their attention in new Australian homes, according to NAB's Quarterly Australian Residential Property survey. Nationally foreign buyers accounted for 1 in 6 new home purchases in Q3, with this figure expected to increase slightly next year. At the same time, local investors have remained as active as usual in the new construction market, whilst first home buyers have shied away.

Approvals for new residential construction reached a record high for a 12 month period in August this year according to Australian Bureau of Statistics data, which according to Geordan Murray, economist for the Housing Industry of Australia, has provided a big economic recovery in that sector.

"In the 12 months to August approvals reached 197,571 - a record high in any 12 month period. This result demonstrates that accommodative monetary policy settings are facilitating a sustained recovery in new home building," said Mr Murray.

Benefits to the commercial sector

In a September quarter release, it was noted by the RBA that around one-quarter of the value of commercial property transactions since 2008 have involved a foreign buyer. The increase in revenues to Australian businesses from selling commercial assets has led to increased investment in new commercial developments and improved cash flow.

The RBA stated that although there has been a concentration in New South Wales, it will likely spread to other states as buyers became familiar with the Australian commercial landscape. The demand from overseas buyers has been broad based, including investors from North America and Asia.

New Zealand has also experienced a large increase in foreign investment in commercial real estate. Bruce Whillans, managing director of Ray White Commercial in Auckland, noted rising investment from Chinese sources has provided a big stimulus to the Auckland market.

In a second quarter update, Mr Whillans stated that "in the last 12 months over half of our business has come in the form of investment from high-net-worth resident and non-resident Chinese and Chinese investment companies. These groups have purchased 15 properties with a combined value of $249million. In the 12 months prior to June 2013 only 22 per cent of our business was from offshore, with none of our buyers originating from China."