Australia is a magnet for foreign investors seeking to put their dollar into the real estate pot. Around a quarter of all newly built apartments Down Under are purchased by foreign buyers, accounting for about 5% of total housing sales in the country.
It comes as no surprise — home prices in Australia had been steadily increasing at 8.1% a year over the last five decades, following a record economic growth of 27 years. New housing investments gave a quarterly 1.7% boost to the construction industry, further fuelling real estate activity.
But over the past year, property prices have been falling in almost every capital city: Sydney and Melbourne, for example, experienced falling values of 1% a month since November 2018.
The reason? Rising mortgage rates, tighter credit conditions, greater scrutiny from lenders and reduced borrowing power, which have left varying degrees of impacts on all capital cities. Since the royal commission into banking began in March 2018, the lending practices of Australia’s biggest banks have been put under the spotlight, spurring them into action as they began cracking down on borrowers and their ability to repay their loans.
But despite dire predictions, new figures show an increase in the number of recent homebuyers. Housing finance data released by the Australian Bureau of Statistics (ABS) reveals a lift in the number and total value of home loans issued in October, possibly signalling in a reversal in the softening of loan approvals. ABS data also shows increase in investment loans, which could be a signal that confidence is beginning to look up.
Home prices are expected to turn around in the second half of 2019, grow modestly at about 1% and increase to 4% in 2020. Outside major cities, housing prices have been steadily climbing: the South Coast, for example, which is alluring to holidaymakers, has bucked the national trend, with many areas continuing to experience price growth.
Foreign investors keen to ride the wave are only allowed to buy newly built properties, and must secure an approval from the Foreign Investment Review Board before doing so. Only a handful of Australian banks will lend to foreign investors, while some countries have tax legislations that make investing in Australia unfeasible.
There are easier ways for investors to put their money into the real estate market Down Under: crowdfunding for property is increasingly gaining traction, especially with investors who want to avoid the complications of mortgage loans.
Crowdfunding for real estate investment also lowers the barrier into the market for would-be property investors, allowing for costs to be spread among a broad base. There is a lower level of risk involved as well: investors’ names are not involved in the title or any mortgage associated with the project or property, meaning their credit scores will not be impacted should the investment go south.