Recently I’ve been watching the Federal Government’s approach to foreign investment. There has been a bit of attention on this matter recently as just this week there was a committee put together to look at the impact of foreign investment on the following issues:
- Affordability and Accessibility of housing;
- The Foreign Investment Review Board approval process and subsequent policing that the policy is being adhered to;
- A system to track accurately the total amount of foreign investment into the Australian residential property and its source;
- A way to tax or monetise this system so that foreign investors bringing about the need for this system are also paying for the system’s implementation.
The discussion on this issues has raged on with much colour from both sides of Parliament. It was initially triggered by a rather inflammatory report on Chinese Invesment by Credit Suisse.
The committee got to the bottom of the numbers used in the CS report and highlighted the errors within it, as well as investigating what the true numbers actually are. As a result they have come to the conclusion that there is currently no ability to truly track the totality of foreign money going into Australian residential property. So what does this really mean for our market and what if any solutions are available for that situation?
Over the last couple of years both Bill Zheng and myself have been letting people know about this coming wave of foreign investment into Australia. The size and scale of which is incomprehensible for most Australians. I note that throughout the Parliament’s discussions there was never any suggestion that this money wasn’t actually going to be coming in the future.
So what we face is a choice to legislate against all foreign investment, a move which I think many of us would see as against all Australian values of equality, fairness and multiculturalism. Alternatively we could choose to continue to guide that money into the development of new residential properties which would increase our housing stock and enable us to better keep up with demand.
Just as the government has had difficulty in tracking the amount of foreign investment into residential property, it has been hard for us to put an exact figure on the proportion of new properties in our housing pool that have been directly or indirectly funded by foreign capital. But suffice to say with our industry understanding it is very significant.
With a total ban on foreign investment extremely unlikely we will continue to see major investment coming into the new housing market from abroad. In fact we are now seeing significant projects at a suburban infrastructure level that are changing the nature of some of our city fringe suburbs creating larger lifts in value. We see this also continuing to support the strong and accelerating immigration numbers required to replace the government’s tax base as the baby boomers continue to retire.
So when we look at the options likely to be enacted, at worst we see the potential for a $1500 FIRB application fee to be levied on foreign investors wanting to invest directly into real property. This move would have zero impact on the flow of money coming in but will provide the FIRB with the funding it requires to more effectively administer its own policies and establish better tracking and governance. If this happens Australians will be armed with the accurate data and the knowledge that those breaking the rules will be brought to account. Which of course is good news for us all.
Finally I wanted to point out, that with recent Free Trade Agreement being executed with China the speed at which the money will flow and the options for how will come into the country have just expanded exponentially.
Best to get yourself prepared to start swimming with the wave, or even smarter start swimming ahead of it.
If you’d like to have a discussion on this matter, please feel free to book an appointment with me by calling 1300 663 836.
Until next month.. happy investing.