Invest
Foreign investment flows pose ‘troubling trend’, but how to regulate?
Surging numbers of foreign property investors is contributing to the “pressing problem” of price growth, but addressing this is a minefield, an asset manager has said.
Foreign investment flows pose ‘troubling trend’, but how to regulate?
Surging numbers of foreign property investors is contributing to the “pressing problem” of price growth, but addressing this is a minefield, an asset manager has said.
International asset manager, Standard Life Investments has flagged the “surge in international capital inflows” into the smaller economies of Norway, Sweden, Canada, New Zealand and Australia as a “troubling trend”.
Speaking in its weekly economic briefing, it argued that while low interest rates and lack of supply have contributed to price appreciation, foreign property investment has exacerbated the situation.
“The imbalances appear to have been amplified by a surge in international capital inflows in recent years, most noticeably out of China,” it explained.
“While policymakers have a range of policy levers to tackle overheating driven by indigenous forces, capital flow pressure presents a more difficult challenge as governments juggle their commitment to trade and capital openness while seeking to reduce the disconnect as affordability becomes stretched.”
The economist for Japan and developed Asia at Standard Life, Govinda Finn said the region is one of the most buoyant worldwide but that current affordability measures in Australia and New Zealand are “now stretched”.
He warned that there are “rightly concerns” about whether these markets are experiencing a bubble and what could contribute to a correction.
Continuing, he argued that policymakers can take some comfort in the fact that Perth and Brisbane have a different property climate to Sydney and Melbourne.
Neverthless; “A more troubling trend in recent years has been the increase in overseas capital inflows into these cities.
“Property approvals for overseas home buyers jumped sharply in recent years. Regulating these flows can prove problematic, forcing policymakers to choose between housing affordability and the principles of capital and trade openness.”
Some respite could come in the form of a slight slowdown in the pace of foreign purchases, he added.
Mr Govinda’s analysis also highlighted the similar situations in New Zealand, Korea and Hong Kong.
“Household indebtedness is far more than just an Australian or New Zealand problem, with rapid debt accumulation across a number of other major economies in the region.”
While households have exhibited a relatively high tolerance to elevated housing debt thus far, Mr Govinda warned that in the instance of a rate rise, this tolerance would diminish.
“In a world where central banks are seeking to normalise monetary policy, the sensitivity of households to either an interest rate rise or negative income is likely to be high.”
Not everyone agrees
According to the managing director of China research company, Cross Border Management, there’s no evidence that the “nefarious actions” of Chinese buyers are pushing up property prices.
CT Johnson said: “The idea of malevolent effects from Chinese investment has gained a significant following in relation to the property market, where it’s become commonplace to attribute the rapid growth in Australian housing prices to the insatiable appetite of Chinese buyers.”
However, he argued that the notion that Chinese investor interest is the driving force behind surging prices is “conspicuously short on supporting evidence”.
Speaking to Nest Egg, Mr Johnson said: “Chinese buyers are a distraction from the actual problem of housing affordability, which is being driven by low interest rates and high population growth.
“Because of their money and race, the Chinese are conspicuous, which makes it tempting to blame them for housing price increases. But that’s just not true.”
Housing is becoming “progressively less affordable for everyday Aussies”, Mr Johnson said, and this “staggering” increase is a reality that all Australians face and particularly those with smaller incomes.
However, according to Mr Johnson, this problem is tied to the “conventional” factors of low interest rates, a growing population, limited supply and a lack of available land.
Property
Property prices boosted by housing policies: RBA
The central bank has outlined the “pervasive” impact that policy has on property. ...Read more
Property
Labor’s ‘Help to Buy’ scheme not without its risks
With Anthony Albanese sworn in as Australia’s 31st PM, home buyers are excited at the prospect of accessing the new ‘Help to Buy’ scheme, but a property expert has warned that the risks may be g...Read more
Property
Australia's housing market is entering a ‘broad-based correction phase’
Westpac believes the housing market downturn is now underway. ...Read more
Property
ANZ now expects house prices will end the year lower
With higher interest rates on the horizon, the bank is forecasting larger house price declines than previously expected. ...Read more
Property
Which capital cities are most attractive to property investors?
A new survey has suggested that investor attention is shifting away from Australia’s two largest capital cities. ...Read more
Property
Market uncertainty fails to discourage foreign property investors
While interest from foreign investors in Australian property has remained strong, HLB Mann Judd warned that tax increases could see demand shift to other markets. ...Read more
Property
Regional renters forced to spend more of their income than ever before
Renters in regional areas are spending nearly as much on rent as home owners are spending on mortgage repayments. ...Read more
Property
Aussie home buyers now need to save for over 11 years for a deposit
Since early 2020, the time needed to save for a deposit has increased by more than two years. ...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Property
Property prices boosted by housing policies: RBA
The central bank has outlined the “pervasive” impact that policy has on property. ...Read more
Property
Labor’s ‘Help to Buy’ scheme not without its risks
With Anthony Albanese sworn in as Australia’s 31st PM, home buyers are excited at the prospect of accessing the new ‘Help to Buy’ scheme, but a property expert has warned that the risks may be g...Read more
Property
Australia's housing market is entering a ‘broad-based correction phase’
Westpac believes the housing market downturn is now underway. ...Read more
Property
ANZ now expects house prices will end the year lower
With higher interest rates on the horizon, the bank is forecasting larger house price declines than previously expected. ...Read more
Property
Which capital cities are most attractive to property investors?
A new survey has suggested that investor attention is shifting away from Australia’s two largest capital cities. ...Read more
Property
Market uncertainty fails to discourage foreign property investors
While interest from foreign investors in Australian property has remained strong, HLB Mann Judd warned that tax increases could see demand shift to other markets. ...Read more
Property
Regional renters forced to spend more of their income than ever before
Renters in regional areas are spending nearly as much on rent as home owners are spending on mortgage repayments. ...Read more
Property
Aussie home buyers now need to save for over 11 years for a deposit
Since early 2020, the time needed to save for a deposit has increased by more than two years. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
