You Can’t Keep Foreign Buyers Out of the Aussie Property Market

Australia is known for a couple of things. We are known for our beaches, minerals, animals that want to kill you, and for our property market. The latter is arguably the most important right now. It has helped buoy Australia as commodity prices have declined.

In laymen’s terms, it’s helped to keep our economy well oiled. Over the years, Australians have become more than willing to buy investment properties. Owning your own home is not enough anymore.

The great Australian dream is to own your own investment property.

And it’s not just the locals who are mad about Australia’s land. Young Chinese investors looking to make a fortune flock to Australian real estate. The sheer amount of demand for Aussie homes has done wonders for existing homeowners.

They’ve seen their property prices double, in some cases, within as little as five years.

But as you’re probably aware, restrictions placed on foreign buyers are aimed at limiting their existence within the market. Foreign buyers now have to come up with larger deposits and compelling proof they can meet repayments. However, this hasn’t stopped some investors. They’ve been known to pool money together, allowing them to buy some very expensive properties.

Earlier this year, new rules were written up for NSW’s property market demanding buyers to prove their residency and citizenship. The aim for the NSW government is to create a better ownership picture of their state.

These new rules could also restrict foreign buyers who do not hold a clearance from the Foreign Investment Review Board. Yet I doubt this will act as any real deterrent against foreign direct investment into Aussie property.

Funding is no longer a problem

Have you heard of the crowdfunding app Youlu?

Chinese entrepreneurs launched Youlu as a means of raising funds for property developments and construction. Funds are collected form retail investors and sourced to developers. It seems like this is the best alternative for foreign investors who are unable to buy their own piece of Australia.

Not only are foreign investors happy about this new app, but developers are too. Securing lending from the Big Four banks is extremely tough for foreign buyers. But the same could be said for developers.

Banks want to be confident that they’ll get their money back. They can’t take chances on developers’ lofty sales expectations. The price of buying land is already a hefty cost for developers. And most are banking on paying back the loan through their sale assumptions.

So as long as alternative funding exists, Australia will likely continue its construction boom. Germany’s Deutsche Bank [GR:DBK] believes it will continue for at least the next two years.

Their researchers expect that housing demand will remain strong. Low interest rates and the expected payoffs are encouraging more investors to jump into real estate.

The bank expects housing starts (construction) to stay at record levels for several years. Housing starts are only expected to decline 5% by 2018–19. Yet if this is correct, prices might not remain at record levels.

I’m not saying that the property market will collapse or that we are in a bubble. However, if supply starts to nudge above demand, then we could be in for a slight correction.

Härje Ronngard,

Junior Analyst, Money Morning

PS: Most people think great deals in Aussie property are already all gone. This is the worst attitude to have. Why would you take financial advice from some self-proclaimed guru? Instead, why not do your own research and take control of your financial future.

But where do you start?

If you’re interested in investing in property, check out Money Morning’s property expert Callum Newman’s report ‘Australian Real Estate Game Plan’. In the report, Callum reveals the eight letter word that really drives property values. It’s the ultimate guide to help you start your future property plan, and it’s free!

To get your copy of Callum’s report, click here.

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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