Foreign investors having a positive impact

Foreign investors having a positive impact

If you're looking to purchase a new house or get pre-approval for your first home loan, it can be easy to imagine all competition from other buyers in the market is negative. On a personal level it can feel that way, especially when an overseas buyer pips you at the post on auction day.

However, a parliamentary inquiry into foreign investors in the Australian residential real estate market has revealed that investment is on balance good for the country.

The inquiry into foreign investment

The Standing Committee on Economics issued its Report on Foreign Investment in Residential Real Estate on November 27, with some findings that may surprise the average Australian.

While the Committee received many submissions from private persons, industry activists, corporations and government bodies, the overwhelming evidence revealed foreign investment in Australia is a positive element for the country's economy and housing market.

Of course while temporary residents can purchase existing housing under current regulations, most overseas investors are limited to new housing and developments. Often times the interest from overseas buyers can be what gets a project to go ahead.

"Foreign investment through pre-sales in multi-unit developments can be crucial to ensure that many of these projects come to market, which obviously benefits potential domestic buyers as well as renters, through more choice and competition," said Housing Industry Association Chief Executive for Industry Policy and Media, Graham Wolfe, in a November 27 statement.

As situation like this and others serve to increase the stock of housing available throughout the nation, the prediction is prices will eventually move downwards as supply catches up to demand. Of course there is a temporary stage of increased prices due to higher demand, but this is not expected to last long.

Meriton Group pointed out in its submission to the Committee that overseas buyers made up 2.5 per cent of residential purchases in 2012-2013, of which about half were for temporary residents residing in Australia. This puts overseas speculative investment at probably just over 1 per cent.

The long term effect for Australian property owners and buyers

Whether you are researching your first mortgage or looking at home loan calculators for investment opportunities of your own, the question everybody wants the answer to is whether or not Australians stand to lose out in this equation.

According to the submission to Committee by the Reserve Bank of Australia, the effect of increasing the supply of houses is difficult to determine, but is likely positive. Master Builders Australia also submitted that its anecdotal evidence supported a positive influence.

The Standing Committee itself found that while there is room for improvement in data collection that would provide clearer insights, on the whole, foreign investment in the domestic housing supply is estimated to provide a good solution for Australia's housing woes.

Where is the bad news?

The findings of the Committee revealed that the Foreign Investment Review Board (FIRB) had not been effectively collecting data and could not report on its effectiveness over the past years.

It was noted that the FIRB had prosecuted offenders on 17 occasions between 2003 and 2007, when overseas investment was lower than it is now. According to the Committee the FIRB has not started a new court proceeding since 2006.

The major findings of the Committee showed that although the framework itself is sound, significant measures need to be taken to increase the effectiveness of monitoring and enforcement.

As a result, the Standing Committee on Economics made several recommendations to improve the implementation of Australia's foreign investment framework.

"Foreign investment in Australian real estate has been proven to increase housing supply but is also a highly charged and emotional issue. It is very pleasing to see the committee take on board the suggestions of business and produce a series of recommendations that will ensure foreign investment delivers on its intent and is not flouted," commented Amanda Lynch, CEO of the Real Estate Institute of Australia.

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