Australia will review the laws governing foreign investment in the residential market, amid concerns that large-scale purchases of homes by foreigners are driving up housing prices.
Chinese investors, according to some studies, are purchasing up to 12% of all new residential dwellings in Australia.
Victorian MP Kelly O'Dwyer will chair the Federal Parliament's House Economics Committee to investigate if young families are being priced out of the residential market due to foreign investment. The committee will hold public hearings in "real-estate hot spots" to do a reality check.
Having bought AU$24 billion (US$21.80 billion) of housing over the last seven years, Chinese buyers are likely to purchase AU$44 billion (US$39.97) worth of Australian residential property by 2020, according to a recently-released report by investment bank Credit Suisse. Although only an estimated 12% of all new properties in Australia are now being bought by Chinese investors, the ratio is higher in major cities. Chinese investors are estimated to be buying 14% and 18% of all new dwellings in Sydney and Melbourne respectively. Some apartment blocks in the two cities are believed to be having 100% ownership and occupancy by Chinese nationals.
“The committee would look into the current foreign investment framework to assess how it accords with real estate and whether it's driving up prices...The great Australian dream is to own your own home and we know that's pretty difficult even with two incomes and lots of years of savings and a large mortgage so we want to make sure we’re not making it even more difficult," said O'Dwyer.
She added that the original mandate for foreign investment in residential real estate was to increase dwelling stocks and add jobs in the Australian construction industry, and the inquiry will determine whether those aims are still being achieved.
The Opposition has also extended its support to the government’s initiative and welcomed the enquiry. Opposition leader Bill Shorten said that Labor will be "supportive and cooperative" with the inquiry.
“While we will support the inquiry, the foreign investment is not the only issue. We’ve got to make sure that ordinary Australians can get their deposit together, we’ve got to make sure that the land is released, that they have adequate infrastructure," said Shorten.
Chinese investment in Australia’s residential and commercial properties increased by 42% during the last financial year. Total investment from Chinese buyers was AU$5.9 billion (US$5.3 billion) compared with AU$4.9 billion (US$4.39 billion) and AU$4.4 billion (US$3.94 billion) from Canadian and American investors respectively, according to the FIRB.
Australia's Foreign Investment Review Board (FIRB) grave permission for 11,668 residential property purchases by foreigners in 2012-13, an increase of 19% on the previous financial year. All non-residents must obtain permission from the FIRB before buying residential property in Australia. They are not allowed to buy an established (previously occupied) house. They may be allowed to buy an unoccupied new dwelling, if the FIRB feels that the Australia’s housing stock has increased i.e., if the purchase of houses by foreigners will not cause shortages for the natives. Temporarily establishing residence in Australia for the purpose of buying a house is not a viable alternative to obtaining FIRB permission, since temporary residents must sell their property if they leave Australia.
"We want to know though whether or not the current laws and the current framework are being properly adhered to,” said O'Dwyer.