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Did a foreign investor exodus trigger the housing downturn?

Sydney

Data revealed at a property industry event has pointed to foreign investors leaving the property market as a cause of the current tightening of finance for investment properties.

A lack of confidence and the banks clamping down have been thought of as reasons why acquiring finance is so difficult for property investors lately, but according to the Housing Industry Association’s (HIA) chief economist, Tim Reardon, foreign investors leaving Australia’s property market also has played a considerable role.

Speaking at the HIA’s March Industry Outlook Breakfast in Sydney, Mr Reardon said data from HIA Economics and the RBA have pointed to lending to investors to drop down to its lowest level ever.

The explanation for this, the chief economist said, was not just because of declining confidence in the market or banks restricting access to finance, but because of foreign investors leaving the market.

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Over the last two years, Mr Reardon said data from the Foreign Investment Review Board saw foreign investment decline from $30 billion to $12 billion, with the vast majority of that sourced from China.

“What we know is state government certainly acted to restrict foreign investors in the market,” he said.

“Punitive rates of stamp duty have certainly had an impact, differential exchange rates may have had an impact, falling house prices in Sydney and Melbourne may have had an impact.

“But if we look at the rest of the world, Toronto has seen the same thing, London has seen the same thing, in fact, they’ve seen bigger reductions in foreign investor activity in residential homes than we’ve seen.”

Mr Reardon said the reason why most Chinese investors have left the market has to be due to the Chinese restrictions placed on the outflow of investment out of China.

This has had a significant impact in the Sydney market, he claimed, as it caused the market to experience a sharp downturn at the end of 2018, which Mr Reardon labelled as “largely unprecedented” and something that has not occurred in the last decade.

“If those market conditions continue, then the correction we’re expecting in the market, the correction we thought would take two years, will have been achieved in three months,” Mr Reardon concluded.

Did a foreign investor exodus trigger the housing downturn?
Sydney
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