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Offshore apartment buyers are on their way back

It has been a slow few years for offshore buyer activity in Australia.

The latest data from the Foreign Investment Review Board (FIRB), to mid-June 2022, has shown that the level of foreign investment in Australian property has halved while the number of sales by offshore groups has doubled.

Many factors contributed, however the pandemic and the pull back of Chinese investment were the biggest drivers.

While 2021 had the lowest level of investment ever recorded, there are some early signs that offshore buyers will start to return.

While we can’t easily track intentions, offshore purchases of residential development sites are available.

This gives us some insight into developer interest in Australian property from offshore, which tends to then flow through to offshore apartment purchases.

Using data from Real Capital Analytics, we have seen a significant pick up in offshore investment in residential development sites over the past 12 months, hitting $1.3 billion, around the same levels we were seeing immediately prior to the pandemic in early 2020.

Offshore investment has significantly picked up but is still nowhere near the levels we were seeing in the second half of last decade.

Foreign investment in development sites hit a high of $2 billion in 2016 but was at particularly high levels from 2015 to 2019.

It was driven by Chinese investment – over this time, it accounted for 55 per cent of development site purchases.

So far this year, there has not been a single purchase of a development site by Chinese buyers and with so many changes that have occurred since the end of last decade, they are unlikely to return any time soon.

While Chinese buyers are no longer actively looking for properties, we are continuing to see a steady flow of purchases from Singaporean buyers.

Meanwhile, purchases from Japan are currently at the highest level recorded.

Chinese buyers may be gone for now but there is still significant interest from other parts of the world.

This return of foreign investment is good news for affordability.

Offshore buyers are restricted to buying new homes and the majority of buyers rent them out.

We currently have a significant shortage of rental properties and this will help to increase supply.

Many large scale new projects are not feasible without foreign buyers, primarily because they require a percentage of pre-commitment before construction.

Supply levels are improved if these projects get off the ground.

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Nerida Conisbee

Nerida Conisbee is the Chief Economist at Ray White.

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