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Foreign investment and house prices in Australia

Foreign investment and house prices in Australia can indeed make an impact but it’s not the only factor affecting the Australia’s property prices.

For example, money coming in from property investors from other Australian states and territories – as well as the fluctuating economies of those cities, states, and territories – are also impacting housing costs. Locals with equity in their current homes, who may be looking at buying more property, also play a role in driving up costs.

Recently, it’s primarily Sydney and Melbourne that have seen the biggest bump in property prices. The media often suggest it is due to international investment. When you look at house prices in relation to income, these cities are now two of the most expensive metropolitan areas in the world to buy a home. But it’s too easy to place all the blame on foreign investors. Experts say overseas investment is actually a relatively small percentage of the Aussie housing market.

What’s more, it’s only certain portions of the market – such as brand-new homes and units close to Australia’s CBDs – that are seeing the effects of foreign investment. These are the areas in which first-home buyers – who’d like to be near the cities, for work or convenience’s sake – are seeing the most competition from overseas investors. As a result, many are either having to shift their property search further outside the cities or looking at properties which require a renovation.

The fact that there is competition also points to a lack of housing supply in the Australian property market, which also drives up prices. In this regard, according to some reports, overseas buyers can actually help with housing affordability, because their investments stimulate the economy, which in turn provides employment and promotes the building of more homes to meet the demand.

Doing their research

The internet is another reason we’re seeing increased interest in buying Australian property. It’s not just internationally but also interstate (and inter-territory). These days, it’s so easy to go online for property information. Making information about house prices readily available and making it easier for foreign investment. You can find basically everything you need:

  • Prices
  • Glossy photos
  • Virtual property tours
  • Information on specific areas and communities
  • Real-estate agents
  • Mortgage applications
  • Conveyancers and solicitors
  • And more!

It allows investors from anywhere in the world to find a home for their money (i.e. foreign investment) at a higher rate of return. This is often more than they might otherwise get in their local market. In turn, this drives up house prices.

Foreign investment driving up house prices – Not always about return on investment.

When most people buy a property, they’re looking for capital growth. That’s when they look to urban centres, such as Sydney, Melbourne and Brisbane. But in today’s world, there are other drivers, too.

For example, there are a lot of people with a lot of money in countries with unstable political environments. They’re looking to put that money somewhere safer. They may want to purchase a property to provide a safe and secure home for their families. Or they may wish to send a child to Australia for a better education and opportunities. That child will need to be housed. Either way, foreign investment in Australia often has an effect on house prices. Finally, the Australian real estate market has a track record as a relatively safe investment, unlike, say, the volatile US share market.

The ATO publish more information about foreign investment in Australia too.

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