NSW downturn: ‘Foreign investment to blame’

Speaking to Smart Property Investment, Mr Leyonhjelm said that of the various factors currently weighing on the property market, the majority occur at the federal level, and one such impact is the tougher restrictions being placed on foreign investors.

“The impact of the Treasurer’s and Treasury rules on foreign investors in real estate, that has quite a significant effect on property investors, and the fact that you basically have to show your passport to buy a property has an impact on prices, and of course the rules on foreign borrowing funds has also had an impact,” Mr Leyonhjelm said.

“I had a discussion with the Treasurer, now the Prime Minister Scott Morrison, about that probably 18 months ago, when he was feeling very pleased with himself that he had taken the heat out of the real estate market because of his decision to restrict foreign investment.

“We are now seeing, of course, quite a significant decline in the property market, and all sorts of reasons are being offered for that, but I think it’s perhaps significantly underestimated how much that initial effect of taking the foreign investors out of the market, or reducing their involvement in the market, had on the momentum that we’re now seeing is still downhill.”

Foreign investment approvals slump by half: FIRB

Along with Mr Leyonhjelm’s claims, there is data to suggest that declining foreign investment is taking a toll on the Australian property market

According to the Foreign Investment Review Board’s (FIRB) Annual Report for financial year 2017-18, the approval rate for investment requests was 91 per cent Australia-wide, with a total value of $12.5 billion. While large in monetary terms, this was a substantial drop of $17.5 billion from the previous year.

Similarly in NSW, the value of residential investment approvals was roughly halved compared to the previous financial year, according to the report.

The report claimed that anecdotal evidence from Treasury’s business liaison program also supported the view that a decline in demand from foreign investors has had a major impact on the market.

“Contacts have cited state taxes and foreign resident stamp duty increases, foreign investment application fees, tightening domestic credit and increased restrictions on capital transfers in home countries, as some of the factors dampening foreign demand,” the report stated.

Previously, RBA governor Phillip Lowe said foreign investment approvals have declined in recent years .

“In the middle years of this decade, there was a surge in foreign investment in residential property, particularly from China,” Mr Lowe said.

“In Australia, the demand was particularly strong in Sydney and Melbourne, given the global profiles of these two cities and their large foreign student populations.

“More recently, this source of demand has waned, partly as a result of the increased difficulty of moving money out of China as the authorities manage capital flows.”

Connecting the dots

The Reserve Bank has also made the connection of Australia’s decline in foreign investment to softening in the nation’s property market.

Cited from the minutes of February 2019’s cash rate decision was that, alongside housing supply that does not quickly meet demand, a lack of foreign investment was a reason behind the current underperformance of the property market.

“Another factor weighing on prices was a noticeable decline in demand from foreign buyers in recent years, which had also been apparent in housing markets in some other economies,” the minutes said.

The RBA’s Mr Lowe has previously stated that the decline in foreign investment coincided with a decline in local investment, where investor housing loan approvals declined from the 2016-early 2017 peak of over $4 billion to approximately $2.5 billion by the end of 2018.

Mr Leyonhjem’s comments follow his proposal to abolish all kinds of stamp duty, including those related to property, if he is elected.