It’s hard to deny that house prices in Melbourne and Sydney are through the roof.
And it’s not uncommon to hear people blame the government’s ‘relaxed’ rules for foreign investment in Australia. And more often than not, overseas investors are misunderstood and seen as purely negative.
People are quick to make assumptions and get angry about foreigners’ local property purchasers without realising the real motivations behind their purchase decisions and the benefits of foreign investment.
As most overseas investors are from Asia, which are very CBD centric nations, they often carry the same mentality when purchasing property here. Melbournians generally prefer to live in a suburb of some kind, while foreign investors would rather the CBD.
Overseas purchasers don’t necessarily want to be staying 15km or more out in the suburbs. They aren’t seeking the suburban vibe that some of us want, but would much prefer to spend their time soaking up the city atmosphere.
They’re playing their own property game
What many locals don’t realise is that foreign investors are almost playing their own property game altogether, and it may be one that most locals might even be avoiding. In Australia, foreign investors are only permitted to purchase off-the-plan residences, steering clear of established apartments and homes.
This explains the price difference in Melbourne CBD apartments.
Off-the-plan CBD apartments are selling between $11,000 to $15,000 per square metre which is significantly higher than the $8,000 to $10,000 per square metre rate for existing apartments.
A permanent residency status at a minimum is required to buy existing property, which is why the price for new builds is notably higher. Therefore it’s fair to say that overseas investors aren’t necessarily the reason for standard suburban house prices being so high. Perhaps think again before you blame foreigners if you are outbid at a local auction.
Although it may be hard to see the good when overseas investors purchase property in Australia, but they are certainly filling gaps in the economy that locals may not be able to.
They create jobs for locals
The demand for apartments in the city created by foreign investors fuels the development pipeline and creates jobs in property, construction and other industries. In 2015, over 4,000 apartments were built in Melbourne CBD alone which no doubt has created jobs for Melbournians.
From December 2016 to February 2017, the Australian Bureau of Statistics reported that Australia added 42,500 new building and engineering jobs, taking the total sector workforce up to 1.115 million – an increase of 11,400 over the past three years.
Melbourne is a property hot spot
Overseas investors have helped turn Melbourne into the property hotspot that it now is, boosting prices across the city. It benefits most locals who already own properties here with the only ones missing out being first home buyers. That in itself is a whole other kettle of fish, with wage growth, cost of living and spending habits all coming into play.
Melbourne is no doubt an attractive city, aptly awarded the world’s most liveable city for six consecutive years, with good coffee, a sense of safety and diversity all key attributes.
What also makes Melbourne, and Australian cities in general attractive to overseas purchasers is the freehold titles where the owners have full control over properties, as opposed to leasehold titles in Asia and the UK.
While capital growth is obviously a consideration when purchasing property, overseas investors care very much about rental yield, more than most people think.
Catering to the international student rental market
Overseas investors are certainly taking note that rental vacancies in Melbourne are currently at a near 10-year low of only 1.7%, increasing the potential for rental income to grow.
Another reason why they aren’t rushing to purchase in the suburbs is because they feel that apartments in the CBD will see consistent, high rental.
They think of the large number of international students in cities like Melbourne who are looking to live close to universities. Last year, international students created $5.8 billion for the Victorian economy, a substantial amount of money.
Someone has to be catering to this rental market since locals usually turn their heads at buying CBD apartments. Overseas investors are perhaps doing everyone a favour by buying them to help ease rental prices in the suburbs, as well as encouraging international students to study here and continue their contribution to the economy.
Before jumping to conclusions about the overseas investor, we should be thinking about them more pragmatically and maybe even give them some credit for playing the property game so shrewdly and helping our economy.
Ivan Tandyo is the Co-founder of Xynergy Realty