From UBS:
The value of FIRB approved applications for foreign investment in housing doubled (+102% y/y) in 13/14 to a record high $34.7bn. Within this, the majority 78% share was directed to new housing at $27.2bn (spiking 152% y/y) – of which a 79%+ share was concentrated in NSW and Victoria alone. While it’s unknown what proportion of these (gross) approvals actually ‘transact’ – when compared to ABS residential building approvals of $50.4bn – the FIRB data implies the ‘foreign share’ of new housing investment recently surged to a record high ratio, well above its long-run average.
Importantly, more recent Government policy changes introduced new fees on foreign investment. In Feb-15, the Federal Government announced a nation-wide application fee of $5k for properties priced <$1mn, or $10k if >$1mn. This week, the Victorian Government announced an additional 3% stamp duty for foreigners plus a 0.5% land tax surcharge. However, we expect these policies are likely to only modestly diminish the otherwise strong underlying foreign demand for Australian housing – given the key drivers likely remain a desire for diversification & prospective capital gains.
Overall, we still forecast 2015 dwelling commencements to hit a record high of 200k. Notably, the uptrend of ABS approvals to a record 230k suggests upside risk; but in contrast suggesting less buoyancy is the drop in ‘time to buy a dwelling’ sentiment to below its average level. Importantly, we find cycles of foreign investment in housing historically had a remarkably close coincident relationship with swings in the trend of ABS building approvals – albeit foreign investment in 13/14 spiked well above the normal ratio, meaning it is an increasingly key driver of Australia’s (new) housing boom.
This rush is certainly big enough to have macro-economic implications and is a most welcome development, helping the economy approximate a glide slope off the mining capex cliff, as well as growing housing supply to help put a lid on the RBA’s price bubble.
Long term it doesn’t do much to boost the economy but it’s useful in supporting the cycle.
