How long will foreign investment in Aus property continue?

This question has been generating a lot of discussion at work at the moment. I work for a large commercial builder and the majority of our workbook is building residential apartments.

From my experience talking with clients the majority of purchasers in OTP apartment towers are foreign investors with China often topping the list.

My question is how long do you think this will continue? And how do you think this will affect the property markets where these buildings are popping up?

From discussions I've had there is no slow down in demand and a lot of these foreign investors are purchasing as a method of protecting wealth rather than accumulating it, as is the case for the majority here.

So how does that play out with the two competing strategies? Over the short term we should see a reduction in rental yields for these inner city apartments as the additional supply comes on the market but what other affects could it have? Does it make these units even more unattractive considering you are competing with investors who need to only beat the cash rate for it to be profitable for them?

Or I am thinking about this the wrong way?

 

That is the exact reason I do not invest OTP apartments in CBD areas. Flood of apartments coming to the market at the same time keeping rent yields low. My prediction is that prices will be stagnant in these areas quite a long time.

 

I think the flood of Chinese money is not a sign of strength in China but of weakness. The people with money (and therefore, by logical extension, the people "in the know") are deserting a sinking ship. This isn't a rush but a rout and so may be sustained and may even increase against the flow of bad news coming from the glorious mainland but is structurally unhealthy in nature and will snap shut pretty fast at some point as it represents a narrow subset of deserters.

 

With a measly 23 million people crowding into our main capital cities in Oz we are a tiny blip on the world scale.

There are over 500 times the number of people in China....that's 500 people to our 1 person.

The sheer number of people from overseas that have the $$$ to buy off the plan in our capital cities who do not care whether it is rented out or not may actually be a lot higher than we expect.

Having an asset in a country with a stable political system may outweigh the negatives of no income.

So there may not be a glut of oversupply IF the people buying then don't care if they are getting rent or not.

I could be wrong though.....just a thought

To them it may be like buying a cheap dumpy little holiday shack in Spain like all the Brits were doing 10 years ago...

 

The company I work for reports on upcoming commercial projects but in May the economics team do a forecast for the next 12 months. Back 4 years ago they predicated a boom in multi resi would be coming, they think it will be strong for the next couple of years now however it is hard to tell in 5-10 years out but they have doubts.

This forecast cannot account for things like GFC if it happened but rather with the information today and trends from today.

Mods feel free to edit the post if not acceptable the following;
The full report is about 130 pages and looks at the past 12 months but also the next 12 months forecast. It breaks down each category by stages but also survey results from key decision makers (main contractors, architects, developers etc) on their thoughts and plans are for the next 12 months (e.g. are they looking at increasing head count). If you were interested PM me (it cost $150 for a copy), as I don't own the information contained within it I cannot pass on for free.

 

Agree with the above so to take this a bit further. The demand from foreign investors will outweigh rental demand in Aus by a fair way just based on the population sizes. So if the money keeps pouring in, great for our construction industry as it will keep everyone in work but from an investor perspective could this lead to a shift in rents as the rental supply far outweighs the demand from renters?

The flow on being a heap of brand new apartments with cheap rents, how do you compete with that situation in an older style apartment or townhouse complex?

Purely a thought exercise at the moment I don't think any of this stuff will happen particularly fast but it will be interesting to see how Australia's capitals develop in the next 10-15 years.

I think houses would be a bit safer as there are more owner occupiers pushing demand for good houses in good locations which is a pretty typical view of the market.

 

I can't see it coming to a screaming halt anytime soon.

Check out data on how much foreign money has been, and continues to be, invested in more established cities globally. Sydney is always going to be Sydney.

Will probably keep rents and price growth a bit soft in some oversupplies areas (CBDs of 3 majors, particularly Melb & Bris).

 

Good point, I believe going forward in property investment I will be targeting more owner occupied areas rather than fast growing/high investor areas.

 

A major factor is the low value of the Australian dollar.

Whilst it is so low, purchases are "cheaper" when converting from certain foreign currencies. Unless $AUD grows in value (highly unlikely in short/medium term) then Australia will continue to be an attractive destination for foreign investment and property is a prime commodity right now

 

In fact what we are now seeing is the Au$ trending further down, breaking the 75 barrier last night it hit 73, experts now predicting it will hit 72 which is what RBA expected some 12 months ago.

This is going to be very attractive for overseas investors. Hopefully happy days will continue.

MTR

 

So long as their returns are attractive and there is no legislation prohibiting same, foreign investors will continue.

 

I can only imagine the Chinese buying to ramp up even more in light of the recent stock market tumblea. Affluent Chinese will be looking for investment vehicles to park their wealth that are (excuse the pun) 'safe as houses'

 

As long as government policy allows them to
And aud remains competitive

 

... and when we run out of land

 

@Coxy89

I can't see any factor at the moment that will stop foreign investment.

We personally dealing with buyers from hongkong,singapore,china.

From what I understand, main land Chinese invests Money thru Hong Kong or Singapore entities.

As $Aud drops, property investment becomes much cheaper for foreign investors.

FIRB is approving purchases for number of reasons. Some of them are

Creating job
Adding more housing stocks
Strong ties with Asia
Adding $ to local economy.
Etc.

Evern some of local banks are lining up to fund their purchases at around 50-60% lvr.

Unless FIRB and federal govt introduce some hard-line policies, I can't see any changes soon.

 

That will not be a restriction. Look at what the NSW Government is doing in Epping and Beecroft. Allowing the knocking down of Federation homes to be replaced with 30 storey apartments and this is being replicated everywhere.

 

Agree with the above. There are a lot of industries reliant on this foreign investment continuing which at the moment the there doesn't look like there is any indication this will slow down. And the government won't want to put that investment at risk by introducing legislation that restricts the in flow of money.

The amount of discussion at the moment regarding prices being out of reach of every day Australians, whether it is right or wrong, will make things interesting. Especially with government policies these days seeming to be directed to what will get them reelected rather than what is good policy. If yields start to get affected signicantly by the increased supply the first place mum n dad investors will turn is foreign investors and blame them for everything wrong in the world.

Whether that pressure will be enough to make any changes, probably not.

It would be interesting to see some data on foreign investment in $ vs locals and whether this has always been the case or if it is only a recent development.

 

Once Australian interest rates go up and the dollar strengthens, we'll start to see foreign investors selling to pocket the profit on the currency difference.

Are the same Chinese people who severely overinflated their own stock market now buying property in Australia? What can possibly go wrong?

 

I can't see policy changes happening anytime soon to curb foreign investment. Didn't know about the federation tear-downs (but is federation listing different to 'Heritage'? I believe only heritage listed buildings cannot be torn down, no?)