Media coverage has focused on Asian investors in recent months, but what about investors from beyond Asia? The Journal investigates.
Sydney was ranked fifth in the list of cities growing in importance to Ultra High Net Worth Individuals (UHNWI), according to Knight Frank’s Wealth Report 2014. It placed third for the city with the best quality of life. Should it be surprising, therefore, that foreign investors are increasingly looking to Sydney to invest?
It would seem that the stability of the political and financial markets in Australia is not only a draw for Asian investors, but foreign buyers from beyond Asia as well. In particular, political instability around the globe is prompting many investors to ‘park’ their money in property investments in so-called ‘safe havens’.
Knight Frank Australia’s National Head of Research & Consulting Matt Whitby identifies Australia as one of the key ‘safe havens’ globally. He names places such as Nigeria, the Middle East, Russia, South America and parts of Europe as places where UHNWI originate, all of which have experienced uncertain political and economic stability in recent times.
“I would have thought that many of the problems that are going on at the moment on the political side of things, whether it’s Thailand, Ukraine, Syria and all the rest, just creates even more uncertainty in these regions,” he told the Journal. “Wherever that is going on in the world, markets that are perceived as safe havens will attract capital.
“A lot of the Arab countries had their wealth destroyed by the GFC, but they are coming out of that, so a lot of that money is moving around the world.”
Investment restrictions
Foreign non-residents or short-term visa holders can only invest in Australian real estate if that investment adds to the housing stock. As the Foreign Investment Review Board (FIRB) explains, this generally occurs by acquiring new dwellings, off-the-plan properties under construction or yet to be built, or vacant land for development.
Non-resident foreign persons cannot buy established dwellings as investment properties or as homes.
Therefore, foreign investors have a keen interest in off-the-plan properties. New developments are shooting up all over Sydney, commonly financed by Tier 1 banks that place restrictions on the number of properties within the development that can be sold to foreign nationals. The reason being that foreign investors are seen as posing a risk to the investors.
Risky business
“Under the legislation, you are permitted by law to sell 100 per cent of any new project to foreign nationals,” Curtis Field, Director of Project Marketing at Colliers International, said.
“Those banks, which are typically Tier 1 banks, put provisions onto the developers to say you may not sell more than 10 to 15 per cent (and in extreme cases 20 per cent) to foreign investors.”
In Mr Field’s opinion, the risk to the banks of selling to foreign nationals is minimal, having sold thousands of properties to foreign nationals over the past couple of years. However, he admits that the majority of those buyers come from stable markets where the buyer’s credentials can be easily traced and assessed.
“When you take a step back from that and say, well, an apartment project where you have 100 apartments and you are only allowed to sell say 15 to foreign nationals and then you have the Asian purchasers who are so strong, that really limits the other foreign nationals from being able to invest. They will take up that allocation really quickly with the Asian pool.”
While Asian investors are definitely a significant component of the local market at the moment, Mr Field believes there is also a perception issue at play here.
“You walk into a sales office on a Saturday and there are a lot of Asian faces and not all of them are foreign investors,” he said. In fact, many of these people are actually Australian-born Chinese, or have migrated to Australia for business or family reasons and are Australian nationals through virtue of citizenship.
Under review
On Wednesday, 19 March 2014 the Treasurer, The Hon Joe Hockey MP, asked the House of Representatives Economic Committee to inquire into and report on Australia’s foreign investment policy as it applies to residential real estate. The Committee is expected to report its results on 10 October 2014.
Regardless of the origins of the foreign investors, it looks likely that as long as the law allows foreign nationals to buy new properties, then individuals will continue to seek out Australia as a safe haven for their finances.