Our guest author from CoreLogic crunches the numbers
Recently released data from the Foreign Investment Review Board (FIRB) which covers the 2014/15 financial year revealed that demand from overseas buyers increased substantially.
The data shows that finance approvals to foreign buyers increased by 60% over the 2014/15 financial year. While that’s a large jump in approvals, the previous financial year saw approvals to foreign buyers increase by 98%.
Almost 37,000 dwellings were approved for foreign purchase during the 2014/15 financial year. Over the same period, CoreLogic recorded approximately 497,500 settled dwelling sales. Comparing these figures provides a reasonable proxy to estimate the share of home sales being absorbed by foreign buyers. Based on these numbers, foreign buyers accounted for approximately 7.4% of all Australian dwelling sales.
This may be overstating things somewhat, considering the FIRB data is for approvals rather than actual commitments from foreign buyers to purchase a home. It’s reasonable to expect that not every approval would progress through to an actual purchase.
Of course, foreign buying activity is not spread evenly across the country. The FIRB data shows foreign approvals were most heavily concentrated within Victoria’s housing market at 45%; New South Wales accounted for 33%; Queensland 13%, and 5% in Western Australia.
While the FIRB data doesn’t drill down lower than state level, anecdotally, it’s likely that most foreign demand is concentred within the new apartments sector followed by the new detached housing sector. Despite some sensational media reports, it’s unlikely that foreign buyers represent much market share outside of the newly developed sector, especially now that foreign purchasing activity is being monitored more closely by the Australian Taxation Office in partnership with the FIRB.
With lenders becoming less willing to fund overseas buyer mortgages, it will be interesting to see the effect this has on foreign demand. Importantly, as key housing markets with significant exposure to the new apartment market move through an unprecedented boom in high rise unit construction, it will be important to monitor any effects of reduced demand from overseas buyers in both the sale of off-the-plan stock, as well as a heightened risk of non-settlement.
With large numbers of off-the-plan units already sold to foreign buyers, there may be a higher risk of non-settlement due to foreign buyers failing to secure finance for their loans.
Would you consider overseas property investment?
What do you think about the rise in foreign property investment?