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How To Get Ahead/Beat Overseas Investors
Foreign investment in Australia has been declining in the past couple of years. Right now, though, foreign interests are peaking because of Australia’s low dollar value.
“There was quite a strong uptake in the amount of foreign investment this quarter. Cross-border investment accounts for about 41% of sales volumes for the first quarter.” – Ben Martin-Henry, Real Capital Analytics
Between 2019 and 2020, 5 countries were investing the most into the Australian property market. These top 5 countries are the United States, Singapore, China, Germany, and Canada.
At that time, the Foreign Investment Review Board (FIRB) recorded a total of $33.7 billion invested into the Australian real estate sector. The United States accounted for $13.1 billion. Singapore and China accounted for $9.5 billion and 7.1 billion, respectively. Germany injected $3.7 billion into the property market. The remaining $3.3 billion of the total came from Canada.
“If you look at Australia’s prices, compared to Japan, to London, to New York, to Beijing and Shanghai, we are actually quite reasonable.” – Monika TU, Black Diamondz Property
So with the type of capital that foreign investors have available, how can you ensure that you get ahead?
LOCAL INVESTORS HAVE TIME
ON THEIR SIDE
Time. It might seem very simple but with the latest amendments made to the Foreign Investment Review Board approval process (FIRB), local investors have the upper hand. Since March of 2021, it’s now mandatory for foreign buyers to go through the Foreign Investment Review Board’s approval process.
Before this change, the sale price could be as high as over $1 billion before it required any input from FIRB. This change was put in place in an attempt to protect Australia from any type of harmful acquisition. So anything that would hurt the national interest economically or commercially.
Right now, if a foreign investor wants to get real estate in Australia, the FIRB approval process is now 6 months for processing. Before, it would only take as little as 30 days for a foreign investor’s request to be processed. A local investor could close many real estate deals in that amount of time. So it is the perfect time to put out those feelers.
aRE FOREIGN INVESTORS SLOWLY PULLING OUT OR CHANGING THEIR PERSPECTIVE?
FIRB has received fewer applications over the last few years. Plus, outside of the local restrictions, other factors are contributing to the decreasing applications. These include international capital control regulations. This means foreign countries are starting to restrict the amount of capital that gets invested outside of their country.
In 2020, there were only about 7,000 applications from foreign investors to buy Australian property. That is nearly a 50% decrease in applications over 4 years.
When you look a little bit closer at the numbers, though, you get a better idea of the picture being painted. Only 1,101 of those 7,000 applications were actually for houses already on the market. The remaining over 6,000 applications were actually for developmental purposes. So this means that these foreign investors are adding to the real estate sector. They are introducing new constructions and in effect widening the market.
The government has already approved new constructions to help ease the pressure from the market. According to the Australian Bureau of Statistics (ABS), there were 27.3% more real estate construction approvals between 2020 and 2021 than there were in the previous year, 2019 to 2020.
lOOK OUTSIDE URBAN AREAS
Foreign investors are more interested in office spaces in city areas like Sydney when they are looking for commercial property. While most people tend to prefer to own investment property in city areas. The suburbs, though, are actually more lucrative when you think about renting the property.
Since the pandemic, more and more people have been moving away from the big cities. People are now choosing to live in more suburban or rural areas. Foreign investors aren’t showing too much interest in these areas yet. So it’s the best time to get your footing in those kinds of markets. The ABS reported migration of over 11,000 people from urban areas in the last quarter of 2020.
In the current climate, we can see that there is a disruption in the volume of foreign investors. This can be attributed to a few reasons from local FIRB restrictions to the COVID pandemic. It’s now easier for local investors to get first dibs on a piece of property.
With time on your side, get in touch with MLS Finance, we have a team of agents available to help you find the perfect investment for you.
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