Foreign buyers are still a hot-button topic. The government inquiry plans to finally give the FIRB the teeth it needs. This should take the heat out of the issue, but won’t make all that much difference to a price-driven market.
The foreign property dollar story just keeps on giving.
Last week the AFR was running with the story that Malaysian developer UEM Sunrise has sold out a new high-rise residential tower in central Melbourne after just two weeks.
Three-quarters of the apartments were bought by foreigners.
92 storeys, 941 residential apartments and 210 serviced units – all sold, in just two weeks. Mostly to buyers in China and south-east Asia.
“Raymond Cheah, director of UEM Sunrise’s Australian subsidiary, said the sell-out was “breathtaking”, as the project launch had originally been slated for January next year.
“In UEM Sunrise’s 49 years of history in property development, the intensity and excitement of Aurora Melbourne Central is unmatched,” he said.
Mr Cheah said the project’s offshore buyers were attracted both by Melbourne’s reputation as the world’s most liveable city and its relatively low prices by international standards.
60 percent of buyers were investors…”
This issue is quickly approaching boiling point.
More and more people are trying to paint it us a foreigners vs local first home-buyers, us vs them type issue.
More and more people are running with the convenient argument that it’s the Chinese who are making homes unaffordable for our poor kids (never mind sloppy land-release strategies and loopy taxes).
And they’ve been able to make hay with these arguments because no one quite knows what’s going on. There’s a general feeling that a lot of Chinese buyers are rorting the system – particularly with non-residents buying existing properties, which is against the rules (new properties are fine).
And so into the mix comes some pretty handy work by the government, and the FIRB inquiry led by Kelly O’Dwyer.
Now, if you’ve been following my blogs you’ll know I’m not shy about sinking the boot into the pollies, but I’ll also tip my hat when it’s due, and the parliamentary inquiry into foreign property investment has pretty much nailed it.
(Though at the same time, it was bleedingly obvious, and they could have just read a couple of my blogs and saved themselves a whole bunch of time and money. But that’s the times we live in. The government gets the bleeding obvious right and it’s cause for celebration.)
Basically where O’Dwyer and the committee come out is that the basic framework around the foreign purchase of property is about right, it just needs to be enforced. And it seems that the FIRB just hasn’t had the resources, or the inclination, to do much about it in recent times.
As O’Dwyer says, “…these rules are not being properly enforced. We’ve had no court prosecutions since 2006 and not one divestment order issued by the Foreign Investment Review Board since 2007… I think that FIRB has definitely been asleep at the wheel.
We have been very critical in our report about the internal processes at FIRB for audit compliance and enforcement activity. But we have also, equally, said that FIRB does need to be beefed up and that penalties need to be stiffer and there needs to be more transparency…”
And so that’s the recommendation that’s on the table. Give the FIRB more money so that it can do its job. And the proposal for a small fee to be attached to the screening of foreign purchases to fund the FIRB’s work is essentially a good one I think.
There’s a couple of other key changes that should give the system more teeth and more integrity.
The committee recommends a civil penalty regime for breaches of the rules. They also recommend that fines be calculated as a percent of the property value, so they can still act as a deterrent to richer buyers.
One of the more novel proposals is that penalties should also apply to third parties who knowingly assist a foreign investor to break the rules. It’s not clear how’d you police that, but it should send a slight chill through real estate agents and developers targeting Asian buyers.
They also recommend that any capital gains made on the sale of an illegal property should be forfeited to the government, to stop investors seeing fines as just a ‘cost of business’.
None of this is rocket science and all the proposals are thoroughly sensible. And O’Dwyer deserves credit in wrangling those parliamentary cats to such a good outcome.
But how much difference will it actually make?
My guess is, not much.
The real problem here is that no one had any faith in the system, and that opened the way for doubt and hearsay, and at its worst, racist name-calling.
Giving the system teeth and actually enforcing the rules should help take some of the heat out of this issue. This is a good thing. I think most foreign buyers are playing by the rules.
And getting our house in order now means we can avoid some knee-jerk, populist freeze nf foreign buying somewhere down the road, which I think is where we were heading.
But I don’t think this is going to deter most foreign buyers. Remember in China, Australians aren’t allowed to own property at all. So enforcing Australia’s regime, which is still generous by comparison, is not going to send some message that we’re anti-foreign buying.
And I just don’t think illegal buyers were having that big an impact on the market.
But of course, it’s been difficult to know. Hopefully giving the FIRB more power should also help shed some light on what is actually happening.
And just a final note on the topic, MacroBusiness have put this chart together of Australian house prices in Chinese Yuan:
What it shows is that price gains over the past couple of years have been off-set by a falling Australian dollar (relative to the Chinese Yuan).
From a Chinese perspective, Australian property is still 15% below it’s peak…