Limiting foreigners from buying property in Australia is xenophobic, according to the Real Estate Institute of Australia president Malcolm Gunning.
Mr Gunning’s comments come following the news of the Government’s crackdown on illegal foreign property purchases, which could open up more than $100 million worth of property.
The hurdles placed in front of foreign buyers are significant and are working, but Mr Gunning believes it sends the wrong message to overseas purchasers, particularly the Chinese.
“If you look at the hurdles the Government put in place from late last year, they are significant,” Mr Gunning said.
“The signal it is sending to Chinese buyers is that we are not interested in your money. In my opinion, it is xenophobic. It is politically driven, too.”
According to Bloomberg, since 2010, offshore buyers have only been allowed to purchase new properties after gaining Government approval, and can’t buy existing homes. A 2014 report by a parliamentary committee found these rules were only being laxly enforced.
Mr Gunning said this raises concerns on new home and apartment builds, as foreign buyers were the main drivers of the construction boom.
“In the past, the Government might have deliberately let the door wide open for foreign investment and didn’t care money was coming from. There were not any filters put in place because a lot of the money that went into real estate also went into jobs, particularly post GFC. After 2009, the construction boom just started to kick off and that was underpinned by foreign investors.”
He warns that there will be a glut of empty dwellings if foreign buyers are discouraged from spending money in Australia on property.
With capital city house prices cooling off, Mr Gunning said it does not make sense to restrict foreign investment given that supply is no longer a major issue.
“There’s a belief a lot of price rise in Sydney and Melbourne was attributed to foreign investment. The main reason, however, is due to the economic activity in those two states. The brightest and smartest people are in Sydney and Melbourne for jobs. Secondly, it can be attributed to a number of money baby-boomers have and the cash they have. They trust bricks and mortar more than sharemarket.”
He says foreign investors are unfairly maligned and are not to blame for affordability issues in Sydney and Melbourne.
“The primary reason for the affordability issue is not just foreign investors; it’s a combination of good economic circumstances. Affordability problem only relates to Sydney and Melbourne metros. Affordability is not a problem in Brisbane, Adelaide, Perth, and Canberra but is a problem in the 10km ring of Sydney and Melbourne CBDs. They are two of the top 10 best global cities. That’s got to overlay this argument also.”
Under the new crackdown announced by Treasurer Scott Morrison, $122 million of property illegally purchased by foreigners has been uncovered. The Government has issued $3.2 million in fines, and all homes must be sold within three months of being caught.
Mr Morrison also announced that foreign owners who leave a property vacant for six months or more would now be fined at least $5,000 a year. This was calculated to lower rental prices, with reports suggesting there were nearly 200,000 empty homes in Sydney alone.
The fines for vacant properties will no doubt be a disincentive for foreign buyers.
“The vacancy rate in Sydney for residential is its highest in two years this quarter. So what we are seeing is the flow of property now is starting to meet demand, or slightly outstripping it. Give it another 12 months and it will reverse. These fines and taxes for empty units, yes, of course, it is a disincentive.”
Treasurer Scott Morrison’s crackdown on illegal foreign property ownership is all part of a bigger picture, Mr Gunning said.
“The Government is concerned about money laundering. I’m of the opinion this crackdown has also come out of discussions the Federal Government has had with the Chinese Government. There is a lot of money that has flowed out of the Chinese bureaucracy into Australia. All this plays a part in the broader foreign investment picture.”