How Foreign Investment Affects Australian Property Prices and What That Means for Investors
If you live in one of our major cities, chances are high that you’ve heard or read about foreign investment in Australian property.
But what does foreign investment do to property prices? What does foreign investment mean for Australian investors? How does foreign investment even work, and why is it such an attractive proposition for overseas buyers?
WHY DOES FOREIGN INVESTMENT HAPPEN?
Australia has a current plan to grow its population to 40 million people within the next 30 years – an action that will help to grow our economy.
Compared to some other countries, such as China or the USA, Australia’s economy is small. But we’re still in the top 25 richest countries in the world. So, we’re doing well by anyone’s standards.
To continue to grow our economy we need money – the more money, the faster the economy can grow. Put more money in the economy and we stimulate growth, which means more opportunity for people to be paid higher.
But the current population can only make so much cash. So where do we go for more?
Allowing people from other countries to bring their money here stimulates and grows the Australian economy. But is it as simple as that, and what are the potential adverse effects?
FOREIGN INVESTMENT AND PROPERTY PRICES
To understand some of the effects of foreign investment in Australian property we look at Sydney.
Between 2007-2017 Sydney saw a property price boom. Values of property rose at a much faster and higher rate than usual projections, this culminated in Sydney now being the world’s second most expensive place to buy a home. (The first is Hong Kong).
While part of this is a simple supply and demand issue, i.e. state and federal governments are not making enough land available for new developments, there is also the issue of foreign investment.
Australia has a high liveability factor – possibly even more so after the way we have weathered COVID-19, with much less economic downturn and death/illness than other nations – and is seen as an attractive place to live.
If foreign investors see the lifestyle and health benefits of living here and even our expensive housing being cheaper than their local properties, the influx of their money could potentially drive property prices up.
IS AUSTRALIA ATTRACTIVE TO FOREIGN INVESTORS?
To understand why foreign investors might want to buy property in Australia we have to look at the places overseas cash is coming from.
A recent article by the Australian Financial Review said rising house prices could be affected by investors from “Hong Kong, where political and social unrest is expected to increase interest in safer markets”.
Australia is seen as a safe, stable country and economy. We run democratically. We don’t go to war easily and the overall standard of living is seen as high. Compared to some other nations where unrest is common and governments are historically corrupt, Australia is viewed as a desirable place to live and a safe haven for savings and investments.
HOW FOREIGN INVESTMENT BENEFITS AUSTRALIA
Overseas investment in the Australian economy does have significant benefits. Foreign students plough millions into the economy each year but don’t put a strain on the job market. As well as keeping our unemployment rates low, our universities are able to maintain a world-class standard of education and facilities.
The overseas demand for property also stimulates the developer market, without which we might have an undersupply of housing.
The Australian Department of Foreign Affairs and Trading describes foreign investment as “integral” to our economy, saying, ‘Foreign investment helps Australia reach its economic potential by providing capital to finance new industries and enhance existing industries, boosting infrastructure and productivity and creating employment opportunities in the process’.
While there may be pros and cons, foreign investment does create wealth for you as a property owner and the Australian economy as a whole.
SAVVY INVESTORS REAP REWARDS
Find out more about how foreign investment might affect your property values at one of our free property investing seminars.
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Book your spot now and find out what you need to know about the current market landscape and how you can make it work for the ultimate wealth creation opportunities.
By Sam Saggers