Four out of every ten of Melbourne’s new apartment purchases are being sold to offshore buyers, according to data from Charter Keck Cramer, a property advisory firm.
Whilst fueling a construction boom across Melbourne and Sydney, it also creates political headaches for both state governments and the federal government.
According to figures by News Corp earlier this year, around 11 percent of residential properties sold in NSW are being purchased by foreigners.
Wendy Hayhurst, CEO of the NSW Federation of Housing Associations has been cited saying that some investors were buying apartments as investments and then leaving them empty – a move which she says was “driving up higher prices”.
This in part prompted Victoria to introduce its vacant property tax, mandating anyone owning a property that lies vacant for over six months to pay an annual tax of 1 percent of the capital value.
Known as the Foreign Purchaser Additional Duty (FPAD), the policy took effect in mid-2015 and applies from the date when the contract for the property is signed.
While Victoria generates an estimated $133 million annually from this tax, the underlying issues of housing affordability remain largely unchanged.
Data from the Foreign Investment Review Board indicates that while most of the foreign housing investment in Australia goes into Victoria and NSW, a 2016 Treasury paper discovered that its overall effect on home prices was very small.
However, at the same time, researchers at Griffith University discovered that around 25 percent of the price growth in both Melbourne and Sydney between 2004 to 2014 was directly through foreign investment.
Reports such as these have forced the government to act and as a result, prompted the federal treasurer to impose changes in May’s federal budget. These include a 50 percent cap on foreign buyers in new developments, a vacant property levy and capital gains tax changes for foreign residents.
The impact of this high rate of foreign apartment ownership for Melbourne is, according to several sources, one reason why the city has grown by nearly a million people since 2006.
Speaking to Fairfax Media recently, AMP Capital economist Shane Oliver pointed out that a blanket ban on foreign buyers was not the answer and would have a “negative impact” on the market and “could see apartment prices fall by up to 30 percent”.
Despite all this, Melbourne was once again voted the world’s most liveable city by topping The Economist’s liveability index, although according to the index, housing affordability was not considered.