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…
Bargain?
Greg M says
I like the idea of percentage based fines, and fines for those aiding illegal buying, but I’d go one further – maximum penalty is complete seizure of title. (ie: Thanks for the money but you now don’t own that illegal property)
John from Perth says
I think it is a cop out with the enquiry saying the FIRB didn’t have the resources to do their job.
If these government boards don’t do their job what’s the point of having them? They cost tax payers heaps and have allowed a total sell out of our real estate to foreign buyers in exchange for their funny money.
No one is ever held responsible for anything in the public service. Its about time public servants are held responsible for their non performance.
If we are going to allow foreigners to buy our properties why don’t we put in a pre approval system with the FIRB rather than prosecute after the event?
Our foreign buying laws should match other countries rules. If we cant buy their real estate then they shouldn’t be allowed to buy ours.
jota6689 says
bollocks to the stupid rules. The simple truth is if small insignificant Australia wants a descent expanding economy we must allow foreign investment in property without silly rules. Do not forget that we are also competing with UK, USA, Canada, Singapore and others for the property investment $. Property Investment is still the engine driver of the local economy (I am talking Aust wide and not just WA) and the only investment class that the local banks are prepared to fund _ forget business lending unless you have property collateral.
Whether another country allows Australians to own property is irrelevant and a nonsense argument.
And do not forget we NEED them and they do not need us. Sure we have iron ore and some other stuff in the ground that they like BUT they can easily get that elsewhere eg. gas from Russia, cattle and iron ore from Sth America etc.
Another very deep hole that Australia is building is the myth of the best country/most liveable etc. The myth/propaganda is not the fact and the myth matters little to an Investor
al says
jota6689 ….. what a ‘nob o boy’ confusing lock jaw perspective , ‘nobody’ buys any real estate that is insignificant, you are inside out all over, a “descent” (?) ‘expanding’ economy is akin flat line(?) while I am not opposed other any human race/culture) if we do not ensure our own cultures-existing home needs available for them in equality manner then we are promoting our children’s base security demise.
It is so, look at the nett result longer term, every duplication of home ownership is rent based when ‘income’ is the objective, will that money stay in this country- circulate here? …C’mon? – fast not least, our loving banks,..ha ha ha? all they really want/do is to keep their hand on the noose rope with clarity as perhaps better said, “Sherriff Nottingham” …
Your mindset: “Whether another country allows Australians to own property is irrelevant and a nonsense argument.”+”And do not forget we NEED them and they do not need us.” … is an unbelievable nonsense dichotomy in as of itself, we NEED them? ‘Boy oh boy’…you have an unbelievable mindset – we ‘need’ them? – Because “they do not need us” ? I think you should move to China and enter politics with honours tomorrow … good luck buddy …could see u in Canberra soon – (or try banking sector they will just luv you!
jota6689 says
Thanks for your ill informed (ignorant)
and xenophobic comments. Our children’s base security demise? You have got to be kidding. Your comments
leading to this doozy clearly evidences a huge dose of xenophobia. What exactly
is our culture except an indistinct amalgam of many races from all continents.
Maybe the culture you are still attached to is the convict one that was born
from the illegal ‘finders keepers’ mentality of good ol UK – and illegal because even in the UK at the
time the law did not (and still does not) condone finders keepers where the real owner was known. Oh yeah
we need them. I do a lot of work with overseas business group exchanges (in
particular Chinese) and I can assure you that the investment will continue to
occur only so long as it stacks up on a ROI basis and is in support of their other business
interests in the country. I can also assure you that once BRICS hits its straps
and more countries join in that Group the current investment levels and high
rise occupation levels in this country will be at risk. In that event your children’s base security
will be assured in the then vacated high rises of Melbourne and Sydney – the banks will be giving them away.
al says
I may be wrong jota but it seems to me ‘your attachment to missing the obvious’ – ‘someone forgot to tell the first poms landing on the east coast that what you say re; a ‘convict mentality’ of mine because despite you MAY have had a notion of a point – you totally contradict yourself and apparent historical accounts when the tall ships of first ‘Brits’ ‘parked up’ on the east of Oz – it seems to be historically ‘they forgot’ to properly understand what Gough saw as was an obvious necessity to rectify and said … ‘shit somebody better give some of it back’ before there nothing left of “the original land owners rights” because that which you jotta claim no ‘original finders keepers’ attitude ‘issue’ thing existed has still NOT and cannot be properly bloody fixed as you claim according to the (illegal) ‘finders keepers’ mentality of good ol UK – and illegal because even in the UK at the time the law did not (and still does not) condone finders keepers where the real owner was known. …..
’So’ …..accordingly – eventually … one old man (not long ago in HIS story …
Gough said “stick ya hand out Vincent because
even if the mother country cannot now, as it is way too late with all the title deeds been falsely done up to this point in time – but at least WE did GIVE BACK ALL of what is STILL NOT owned by everyone else since the y-U-K (?) mass shot down those first land owners who then could properly claim it was NOT in-habited as far as they could tell?… and drove a stick with a piece of cloth attached in OZ earth shore and (invisibly?) declared “finders keepers” and a long, long time, thereafter, enabled all of us to witness Gough hand pour ‘country back to his people’ … or did I miss your point about the ‘real owners’ somewhere along the way?
…a ‘piece of material on stick and no witnesses’ in any manner where able to attest that anyone
had found ‘real owner’ with “title deed” in hand … well buddy I like your ‘gung ho’ but it is appears your gravitar has sanctioned a gravatus infection in your comments and I wish you luck that you may be impregnated with more foot in mouth reflections – perhaps you seek further into native title rights – I intend no (prejudice) entitlement rights assuming – jota6689 is your own native title entitlement rights to trade that which is handed down (one way/ another) due your ancestoral priviledge’s being courtesy among all since the first since mother country claimed ‘its ours’? ….
…(at least now?) …isn’t it ?… ‘captain..?’… ‘’eye – eye Captain” ? but how do you get your commission …”guvner” ? … (“easy laddie – that 100 acres over there is allocated” …. ROI and BRICS … ? all courtesy of a shot gun and a rag on a stick … you do not have any grace nor respect for your ultimate freedom of having far more than you need …of original lies – theft…
Tom says
Why don’t you both learn to express yourselves in readable English?
Gibberish is not English!!!
Cool down!!! And check what you are inflicting upon the readers – BEFORE you hit the [Send] button.
ted says
Talking about the bleeding obvious – a requirement on settlement of a property deal should be that the purchaser prove their citizenship or permanent residence of Australia – no proof, no settlement….
Henry fr sydney says
Blame the goverment/developer and not the investors or buyers, because they did a lot of road shows in overseas and they benefit with of the business and tax etc.
You can’t have a cake and eat it too. Either change the policy or such it in!
the hypocrite hater says
whatever happened to a 99 year lease?should we be so eager to sell off all of Australia’s assets?
coka cola owns the rights to the artesian basin,that’s a shit load of water.why not lease assets so at least we have the option to regain eventually.oh thats right ,money is more important than anything else…yeah I’m a bit of a tree hugger,i would like my kids to be able to enjoy the environment i grew up in which wasn’t that long ago.so now they are allowing more ships to pass through the fragile barrier reef to export minerals ,sell off the real estate over seas etc etc,but whatever you do don’t smoke in public or walk your dog without a lead.now they are trying to get the public to walk on the left side of the footpath in Melbourne like trained sheep,this shit is getting out of hand but don’t upset overseas investors we need their money.
Wayne Spindler says
I agree with Ted, who offers a really simple solution.
Mary from Prahran says
Governments do see the bleedingly obvious but they won’t admit it. Commissioning inquiries, investigations, assessments, reviews, investigations, reports etc etc keeps all their fat cat bureaucrat friends in plum jobs, and justifies the existence of the most useless public institutions. That’s how they waste taxpayers money and get the national budget into debt.
Les says
60 percent of buyers were investors…
If true, steer clear of being in the 40%…. Problem there is, if o’seas investors sell up en masse, they will be selling into 40% of the original market (o’seas buyers can’t buy second-hand). Watch the values drop like a stone if that happens !!
Dan says
Jon, I’m keen to know your thoughts on whether you think the foreign investment could drive property development and prices just because their sinking all this money into it and end up creating a significant oversupply of property that causes a drop in rental prices and ends up creating a slump (or worse) in capital prices too. The development of new units seems to be excessive to me and I think the older units, and even houses to some extent, could suffer as a result.