Asian Property Investment – An Overview of the Real Numbers
Domestic investors to capitalise.
When buying property in Victoria, consider areas away from high-demand overseas investment, such as the multitude of apartments for sale in Melbourne CBD.
Newspapers sell copies and programs attract viewers by sensationalising claims of Asian investment “flooding” the Australian market and snapping up Melbourne properties. We look at the numbers and the changing investment trends as well as the implications of hot or cooling markets to find out the truth.
The Who’s Who of Foreign Investment
According to Department of Foreign Affairs and Trade (DFAT), at the end of 2015, the total value of foreign investment in Australia stood at $3.0 trillion. This includes direct investment in commercial property and real estate, as well as other investments such as trade credits and is made up of foreign residents as well as overseas companies. Of this, USA, Britain and Belgium were the top three sources of foreign investment, with a combined total of 52.8% of all foreign investment.
Japan, Singapore, Hong Kong and then China took the next spots, with further European countries rounding out the top 10.
Of this total investment however, China is now the largest source of foreign-owned property investment. The proportion of offshore ownership has increased considerably in the past 5 years, with levels of Chinese and Indian investment increasing particularly. But to give a tangible example, although Chinese investment has surged in recent years, offshore Chinese purchases totalled only 2% of all property transactions in 2014.
Trends in asset ownership
While total investment in Australia has significantly increased over the past decade, investment in the real estate sector now attracts a much larger share of total foreign investment than ever before, with demand expected to continue to increase.
Traditionally, the majority of foreign property investment has been in our biggest cities’ commercial assets. Office and commercial properties in the Sydney and Melbourne CBDs have long been the focus, with an approximated 30% of Sydney’s office assets by value, owned by foreign investment.
“China is now the largest source of foreign-owned property investment”
Due to increasing prices and competition, these markets are expected to stay strong, according to senior economists. However there is a growing preference for suburban assets in our major cities, as well as more investment in some of our other major centres, particularly the Gold Coast, Brisbane, Perth, Canberra and Adelaide. Recent figures show $600 million of commercial and development sites on the Gold Coast alone, sold to Asian investors.
Australia welcomes foreign investment and the capital it adds to our economy but the Government still reviews all foreign investment proposals on a case by case basis, taking into account their alignment with our national interest.
Despite this, there is an oversupply of apartments, particularly in both Melbourne and Brisbane’s CBDs. Foreign developers are building more towers to fulfil the demand of their overseas clients, despite the fact that vacancy rates in these locations are rising.
Domestic investors to capitalise
One thing all trends point to is that foreign investment demand will remain strong.
The Chinese economy is experiencing slower growth, which leads to lower overseas investment. However, the low Australian dollar and relatively low asset prices will attract a range of buyers from other areas such as Malaysia, Japan, Taiwan, South Korea or Hong Kong.
Domestic investors can capitalise on the increasing Asian investment by direct ownership. When buying property in Victoria, consider areas away from high-demand overseas investment, such as the multitude of apartments for sale in Melbourne CBD. Development of strategic partnerships and joint ventures with potential offshore investors will also stand domestic investors in good stead.
The numbers tell the real story
While the headlines will always be sensationalised, it’s the numbers that really do the talking when it comes to the true story behind foreign investment in Victoria, and indeed, Australia-wide.