Foreign investment's impact on the local market

Foreign investment's impact on the local market

24 February 2014 by Douglas Driscoll 1 comments

What impact is foreign investment really having on our property market?

The past year has seen the rise of the foreign investor, and it seems that industry hyperbole has now reached fever pitch. There is now not a day that passes without constant bombardment on why we should be trying to attract investors from overseas. But before we jump on the gravy train, maybe we should question the wisdom of actively seeking buyers from outside of a country where there is already arguably an oversupply of local interest. 

Please don’t get me wrong, I am not for one moment suggesting that we forsake foreign investment; instead, I am merely playing devil’s advocate and asking whether this instant gratification could have long-term ramifications. 

It’s at this point that I must explain that I have a full appreciation of the role of an estate agent. In my view, every agent’s primary focus is to secure the best price for their vendor, irrespective of where the buyer originates from. I should also add that I am not Australian myself, so this is not a jingoistic rant. My views are merely those of an interested bystander looking in at a market that is potentially leading itself into difficulty. 

My main concern is the possible impact on our market in the medium to long term. For example, we often bemoan the extreme undersupply in our capital cities - yet we could be inadvertently diluting the property pool even further. According to RP Data, the average Australian homeowner now holds onto a property for approximately nine years. Overseas buyers usually have a long-term investment strategy, so the period that properties are held could be driven up even further. If this trend continues, what will the real estate landscape look like 10 years from now?

Given that we operate in a global economy, we certainly shouldn’t be lamenting foreign investment. However, maybe some form of regulation should be implemented to avoid future saturation. Introducing boundaries such as limiting the number of properties that one overseas investor is permitted to acquire, or that developers must sell a percentage of their stock to Australian residents will help open up opportunities on home soil. 

Some unconfirmed reports point to the Australian-based relatives of some of these investors acting as local conduits or aggregators for the purchase of established property, so the Foreign Investment Review Board may also need to tighten their regulations on how money is entering Australia. 

I’m no expert, but to me, it seems obvious that more ground work needs to be carried out to ensure that both the economy and property market remain safe and strong for future generations.

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