Australia has some of the highest house prices in the world, and some of the highest relative to income. They’re rising, too: while even booming Germany’s house prices are still undervalued, Australian house prices are about 30% above historical norms and 20% up in terms of price-to-income ratio over their long-term norms.
Comparisons with other places put that in perspective. House prices in Sydney are about 50% higher than in notoriously expensive New York, where the ‘micro-home’ trend began out of necessity, a consequence of property prices rising on the back of the largest pile of accumulated wealth anywhere in the world. The median price in Mildura, a small country town sitting on the border between New South Wales and Victoria, is about the same as Chicago – America’s third largest city. For comparison, that’s as if prices in Whitstable were higher than those in London. And wages are rising in Australia, but it’s not incomes powering this boom: wages in Australia rose by about 2.6% from 2013-2014, while house prices jumped over 10% in the same period, with Sydney seeing a rise of 15.4% to the end of the financial year and Melbourne seeing 9.4%.
If incomes aren’t rising to keep pace with house price rises, the extra money to inflate the housing market must be coming from somewhere, right?
Partly it’s coming from domestic demand rising and a lag in supply. Wages aren’t rising as fast as property prices are but the Australian economy is healthy enough that many natives want to buy a house. But it’s the high, and rising, proportion of overseas investors that are geting all the attention.
In the first nine months of the current financial year, overseas purchasers put AU$24.9 billion into the Australian property market – including AU$5.5 billion into established homes, and represented 13% of the total value of property sold. Sales to foreigners have almost doubled from the previous financial year. And while about 78% of sales to foreigners were of new property, that AU$5.5bn of established home purchases rankles in a country where foreign money is typically directed to new builds, where it can stimulate the real economy by providing jobs instead of merely inflating the housing market.
The majority of overseas buyers are Asians; a Credit Suisse report indicated that about 18% of new homes in Sydney and 14% in Melbourne are being bought by Chinese buyers. The report also found Chinnese more and more in the role of ‘marginal purchasers’ – ie, those responsible for the price rises by being willing to pay the most.
As a result of all this foreign purchasing, the Australian parliament is conducting an inquiry into foreign buying of domestic real estate, and there are calls to limit overseas buying. Liberal MP Kelly O’Dwyer told a radio interviewer that occupancy will be a key issue for the inquiry: ‘I think what there’s concern about is whether or not apartments are being occupied,’ Ms. O’Dwyer said. ‘So whether or not it’s fulfilling the original mandate to provide additional; dwellings that can be purchased, in the end, by other Australian investors and home owners.’
Australia already has laws dealing with purchases by individuals overseas. Offshore buyers must purchase only new properties and penalties exist to enforce this policy. Meanwhile, if you have temporary residence and you’re living in Australia, you can buy property in Australia – but you’ll need approval from the Foreign Investment Review Board and must sell when you leave the country.
For some, of course, no laws against overseas purchase could ever be tight enough, but Opposition leader Bill Shorten was probably speaking for most of Australia when he welcomed the inquiry, saying, ‘I’m never concerned by people buying houses in Australia to live in them. We need to make sure that housing prices aren’t the phenomena of purely tax policy or other economic priorities.’
What this attitudes probably means for buyers of holiday homes is unclear, but expatriates are unlikely to be strongly affected by more stringent enforcement or new laws aimed at preventing absentee landlords keeping homes empty for tax purposes.