House under construction in Australia
IMAGE: Canva
  • With a national average home price of nearly $1m, Australia needs foreign investors to meet its housing goals.
  • Asian buyers are the largest group of early-stage investors, essential to helping developers secure loans and start projects.
  • Increased fees and restrictions on foreign buyers have led to a decline in foreign investment, hindering the housing market's growth.

In this insightful article for The Property Tribune, Winston Lo, Head of IQI Victoria – a Melbourne-based real estate agency under the global powerhouse Juwai IQI – examines Australia’s pressing housing challenges and the pivotal role of Asian investment in fueling the necessary construction surge.

Australia’s real estate market is in desperate need of a construction boom, and one of the few positive trends supporting new building is foreign investment, particularly from Asia.

By now, everyone knows why we need more new housing. That’s why the government wants 1.2 million homes built over the next five years.

So, why do we need foreign money to make that happen?

Look at it this way. The country-wide average home price is now $933,800, so 1.2 million homes is more than a trillion dollars of housing. We don’t have the kind of money you need to build that many homes lying around in Australia. We need foreign investors to make it possible for us to build enough homes for all Australians.

If Australia makes it too difficult or costly for foreign investors to fund the construction of new housing in this country, they certainly have many other options. For example, foreign buyers invested $79.5 billion (US$53.3 billion) into residential property in the United States last year, according to the National Association of Realtors. That’s more than 12 times what they invested in Australia, and doesn’t even account for investments in multifamily residential, such as apartment buildings and build-to-rent.

In our hemisphere, Australia’s top foreign investor nations are also writing big checks for our ASEAN neighbours. Vietnam, Malaysia, Thailand, Cambodia, and even Laos all receive billions of dollars of residential investment from China.

Winston Lo
Winston Lo, Head of IQI Victoria. IMAGE: Supplied

Developers just want to develop

The truth is no one wants to build homes more than the housing industry. If they could get them built, they could sell them and make a profit. That’s why developers and builders are in business.

But Australia doesn’t have enough money of its own. Just like we need foreign investment in resources, agriculture, and technology, we need it in housing.

In September of 2015, about 48,000 new homes were completed. But in the same month last year, only about 43,000 were. Trouble in the construction industry is one reason for that drop, but the steep decline started back in 2017.

A better explanation is the fees and restrictions that have been raised on foreign buyers since 2015. Many foreigners with money to invest in housing here have decided to look elsewhere.

One in 10 Australian detached homes are built by a foreign-owned company, but these companies are finding it harder than ever to put their money to work here.

Asian buyers help launch projects

Because foreign buyers must purchase new property according to Foreign Investment Review Board regulations, they often make up the biggest share of early-stage buyers at new projects. Why is that important? Because developers need early stage, pre-construction buyers so they can qualify for the loans they need to actually start construction.

And Asian buyers are the most numerous foreign buyers. Even when Asian buyers purchase only a small share of the units in a new apartment building, they can be the buyers that make the difference.

Some people think foreigners have bought up a significant share of Australian housing and locked locals out of the market. But the Financial Review recently reported that overseas buyers purchased just 4,355 homes in 2020-21. That’s less than 1 per cent of all purchases that year.

Without them, the project never gets further than pretty drawings on a website. With them, the developer gets his loans and Australians get their homes.

After mainland Chinese, Hong Kongers are the next biggest buyer, with $600 million of purchases. Then come buyers from Vietnam ($400 million), and Taiwan and Singapore ($300 million each).

Value of Approved Residential Real Estate Proposals (AUD)

 

Country – Top 10 2022-23 2021-22 2020-21
China $3,400m $2,400m $2,700m
Hong Kong (SAR) $600m $600m $500m
Vietnam $400m $400m $100m
Taiwan $300m $100m $100m
India $200m $200m $0m
Singapore $300m $200m $0m
Nepal $200m $100m $0m
Indonesia $200m $100m $0m
United Kingdom $200m $200m $200m
Malaysia $200m $200m $200m
China’s share of the top 10 57% 53% 71%

Source: Juwai IQI, Australian Treasury. Treasury data may vary from their earlier reports.

Australia needs homes and will be able to build more of them if we can channel more foreign money into our construction industry.



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