Overseas investment reducing concern of affordability

There have been concerns that foreign investment could be pricing first home buyers out of the market, however, recent industry investigation shows investment may be keeping a lid on prices across the country by introducing new developments and construction to the property market.

In the opening remarks to the Inquiry into Affordable Housing in October, Assistant Governor (Financial System) of the Reserve Bank of Australia (RBA), Malcolm Edey, highlighted supply-side issues as being the major factor in housing affordability.

In his speech Mr Edey noted that "in the longer term, however, supply factors are critically important. It is the supply response that determines the extent to which additional demand results in higher prices over time."

This comes after the RBA released its Financial Stability Review in September, which called for an addressing of the balance between investors and homeowners in the property market.

Introducing new supply

Most foreign investors are limited in their purchases of residential property to those buildings which have only just been constructed, or are purchased off-the-plan, according to the Foreign Investment Review Board (FIRB). Aside from needing approval from the government to purchase in Australia, non-residents cannot own an established home, while resident foreigners can buy an established home to live in while they are in Australia.

With most foreign investment in residential real estate in Australia being poured into brand new housing and developments, the supply of new housing stock is increasing. This is of course a boon when considering housing affordability, as the broader availability of dwelling stock can only serve to suppress the the effects of demand on rising prices.

In May this year the Real Estate Institute of Australia (REIA) made a submission to the Standing Committee on Economics' Inquiry into Australia's Foreign Policy as it Applies to Residential Real Estate. Commenting on FIRB's Annual Report figures for the 2012/13 financial year, the REIA pointed out that foreign investment had increased new housing stock as follows:

Vacant land, primarily consisting of single blocks for the development of stand-alone houses - 1,821 approvals at an average cost of $764,000 per block.

New dwellings and off-the-plan - 4,499 approvals for individual purchases of new dwellings at an average price of $647,000 per dwelling, and a total of $5.73billion in off-the-plan developments, covering 50 applications.

According to the REIA the largest sources of foreign investment were China with 11.4 per cent, Canada with 9.5 per cent and the USA with 8.5 per cent of all approvals.