FIRB: Foreign property purchases jump in 2013

Cross-posted from Martin North’s DFABlog

The Treasury just released the Foreign Investment Review Board (FIRB) Annual Report 2002-2013, which provides some data on overseas property investors. The real estate sector was the largest by value, with approvals in 2012‑13 of $51.9 billion and FIRB recorded 12,025 approvals, compared with 10,118 approvals in 2011‑12. In 2012‑13, no proposals were rejected (compared with 13 real estate related proposals rejected in 2011‑12). Real estate was 38% of the total FIRB proposals approved.

FIRB1303

Within the real estate investments categories we saw an increase in developed approvals and individual new purchases and vacant land. The numbers of applications continues to grow each year.

FIRB1304

To clarify, the FIRB definitions, residential real estate:

Developed – The category of developed residential real estate consists primarily of temporary residents in Australia acquiring one existing residential property for use as their residence in Australia.
For development – Acquisitions of residential real estate for development include a number of categories. The vacant land category consists primarily of individual blocks of land purchased for single dwelling construction. These are normally approved subject to conditions (such as, that construction begins within 24 months). It also includes broadacre land for residential subdivision and multiple-dwelling residential developments (such as townhouses and units).
The new dwellings and off-the-plan category – consists of applications by individuals to acquire newly constructed dwellings directly from developers and applications by developers to sell up to 100 per cent of new residences in a development to foreign interests (the developer is also required to market the dwellings locally). Applications from individuals are normally approved without conditions. If a developer is given approval, individuals need not apply for approval. The approved investment figures for off-the-plan approvals for developers and annual programs overstate the likely extent of actual foreign purchases. The value of investment reported against annual program approvals represents the maximum amount foreign persons may acquire under the program.
Developed property for redevelopment – involves the acquisition of existing property for the purpose of demolition and  construction of new residential dwellings. These are normally approved as long as the redevelopment increases Australia’s housing stock (at least two dwellings built for the one demolished) or where it can be shown that the existing dwelling is derelict or uninhabitable. Approvals are usually subject to conditions (such as, that construction begins within 24 months).”

In real estate, approved proposed investment was $51.9 billion in 2012‑13, compared with $59.1 billion in 2011‑12. The highest value segments were developed properties, and new developed off plans, though the actual value for this category fell by half  compared with 2012.

FIRB1305

The FIRB do not give approvals by country by category, but overall, across all industry categories, China was the largest, with 6,102 approvals, up from 4,752 in 2012.

FIRB1302

Looking at real estate by value we find “other” is the largest category (!). China accounted for $5,932 million in real estate.  Note that FIRB does not separate commercial and residential real estate in these numbers. We think they should.

FIRB1301

Nothing in this data changes our view expressed in our previous post on this subject:

“We are essentially becoming part of a more globalised property market and it is unlikely this will change. Given what we know about the state of the market, and that locals are being priced out by other purchasers, including investors and overseas purchasers, we need to be wary of these current trends – so I think the Chinese Factor is a critical issue. With limited supply, continued overseas investment in our market will drive prices higher, that is, until conditions change. If China caught an economic cold, it is possible we would see a reversal in property fortunes in Australia, so we are probably more leveraged to China through property than we know or realise.

I would advocate capturing more comprehensive data so we can at least get a handle on overseas property investments. I do not think we are able to stop globalisation, but we need to understand the implications a whole lot better.”

I also find it interesting that not one application was refused. Does the FIRB do more than tick the box? Do they have any real teeth? I suspect we are seeing a rise in the number of individual foreign investors, offset by a fall in some commercial categories. The rising number of individual applications are hard to process effectively. Developed “temporary residents in Australia acquiring one existing residential property for use as their residence in Australia” is the largest category.

Comments

  1. “I do not think we are able to stop globalisation, but we need to understand the implications a whole lot better.”

    Well that is a very strange statement.

    Globalisation is simply an expanding range of transactions that a sovereign government chooses not to regulate.

    That is a result of decisions and is not some given or inevitable process.

    Disturbing how some see globalisation itself as a process beyond question or control.

    A decision to allow certain capital transactions (say purchase of local real estate by non citizens) is always a deliberate and voluntary act of government.

    • +1 By globalisation here we mean the unfettered action of global loose liquidity and money of unknown sources.

      As we discussed on the weekend, money is debt, and it is produced at will by the global banking sector. This global banking sector is now controlled by a handful of players.

      It is time for people to take back their communities from the scourge of global debt.

    • A decision to allow certain capital transactions (say purchase of local real estate by non citizens) is always a deliberate and voluntary act of government.

      Absolutely! Canada stopped this disgrace swiftly, and so can Australia. Rudd, Gillard & Abbot should be tried for Treason. No bigger crime than not putting Australians first in Australia.

  2. InconvenientTruth

    Not a single rejection?

    12,025 applications and 12,025 approvals.

    Nothing to see here, move along now!

    • More proof that FIRB is just a rubber-stamp organisation with no mandate or teeth to really do anything.

  3. We’re all the same under the skin. More foreign purchases means more money flowing into the economy. Our leaders recognize this and as such 1 approval knock back means $800k never reaching Australian shores.

    I’m building a house right now and it has gone up $13,000 since I last signed the contract… 7months ago. The builder has been jacking up the base price of the home by $1857 per month… and people still building in droves.

    Why are prices in China, Canada, HK, Singapore rising so fast these days? They don’t have negative gearing and their labour is cheap? I can only think of two things… Rising population and land scarcity near CBD areas?

    • Dave_Comments

      I’m in HK. RE is falling. Hear its getting colder in Singapore too. Parts of China may well collapse.
      They clearly need to introduce negative gearing.

    • Worktime,

      Foreign purchases do not result in any money ‘flowing’ into the economy. When a foreign buyer buys a local property they simply buy $AUS that already exist and use that to acquire ownership. The only thing that happens is the value of the $AUS rises slightly.

      Hope that clears up your misunderstanding.

    • We might be all the same under the skin but the Australian Government has a duty to protect this nation and her people. Protection is the primary function of government and the main reason for it’s existence. Our governments (LibLab) don’t see it that way and sold out their citizens in favour of globalist ideals long ago.

    • Worktime, you would have it so that young buyers are perpetually living under foreign landlords, unable to buy a house for the rest of their lives?

      I suppose you would, as long as it means the value of YOUR investment keeps going up at double digit pace, right?

      “Fuck you, I got mine”, right?

  4. The FIRB is the panting embodiment of the failure of the major parties over the last 2-3 decades.

    It is the mechanism to sanction (and all it does is sanction) the sell off of our assets to fund the private debt boom sold maliciously to the people by the politicians as growth.

  5. Recently the Canadian government cancelled its Visa scheme for rich foreigners to get PRs there, citing one of the reasons of large backlog of applications not able to be processed quickly.

    The fact the FIRB did not reject one application here for foreign investment of a property gives the impression they are just rubber stamping everything because of the amount of applications they are getting which they are unable to cope with.

    • Schadenfreude

      All of our current clients are Asian (Chinese).

      In some cases we are dealing with the agent only, who handles all design, planning and construction stages through us. We never deal with the client directly in cases like this.

      Its not hard to see the high approval number when its obvious they are just using the loopholes and exploiting them.

      • Not hard to envision at all.

        We have Chinese migration agents in Australia working in conjuction with partners in China to help Chinese citizens exploit loopholes in our migration act by coaching them on fake Falun Gong association in order to claim asylum when they arrive in Australia. It is a well known problem in the Immigration department.

        http://www.abc.net.au/news/2012-03-15/chinese-fly-into-australia-to-make-27dodgy27-asylum-claims/3892416

        http://www.abc.net.au/pm/content/2012/s3454442.htm

        There would be a similar network of agents here in Australia and China exploiting FIRB loopholes in order to help Chinese nationals buy property I have no doubt. The Chinese business and societal model is built around exploiting loopholes and seeking advantage over others.

      • @ powermonger.

        Virtually all business and investment and competitive sport is built around identifying and exploiting loopholes in the rules. I suspect that political design of legislation and rules is based on creating loopholes able to be exploited by a target class of beneficiaries, but maybe I’m just cynical.

        The activities of corporates directly working on legislation that brings them benefits is also a concern:
        http://en.wikipedia.org/wiki/American_Legislative_Exchange_Council

      • Virtually all business and investment and competitive sport is built around identifying and exploiting loopholes in the rules.

        There is some truth in that. Let’s compare running on a track to running a company.

        Take the world’s fastest runner. He manages to sell many products to consumers and be paid very well for his endorsements. However he can also run quite well by any reasonable measure.

        Contrast this with the world’s top CEO’s. They manage to earn many bonuses, fill many boardroom seats, be paid high salaries and exercise many stock options. However the actual company gets run pathetically by any reasonable measure.

  6. Aiding and abetting money laundering ! How does the FIRB know the source of wealth of these foreign investors ?

  7. China has 2 main mantras:
    #1 Buy their property, lease ours;
    #2 Use their resources first.

    Would be interesting to speak to say 100 foreign investors in existing residential RE (that the FIRB did not get notified of, eg. property bought by local proxy) and find out the reasons.
    Main reason to buy here?:
    1. speculation;
    2. removing hot money from the Chinese economy;
    3. bringing forward the date of purchase in the event they intend get a future visa (proxy works on commission into & out of deal);

    It is possible demand is being brought forward by years due to high immigration rates.
    Our dysfunctional land market and tax system that encourages gambling on RE is no help.
    This may last for decades.
    Libs & Labor are their own worst enemy.

    Mantra# 1: ‘The Coalitions Policy Discussion Paper on Foreign Investment in Australian Agricultural Land and Agribusiness 2012
    http://shared.liberal.org.au/Share/Foreign_investment_discussion_paper.pdf
    box 1 (page 7) in China, foreign nationals cannot buy land, they can lease it.

  8. General Disarray

    The government need to look at what HK did and slap a nice big tax on any foreign money purchasing property in Australia.

    20% for a start.

      • What they should do and what they continue to do are two completely different things. Remember, their motto is “Uphold the Bubble” and there is nothing they will do to pop or deflate it.

  9. But but…….

    http://www.firb.gov.au/content/real_estate/residential.asp

    Residential real estate

    It is the Government’s policy that foreign investment in Residential Real Estate should increase Australia’s housing stock. That is, the policy seeks to channel foreign investment in the housing sector into activity that directly increases the supply of new housing (such as new developments of house and land, home units and townhouses) and brings benefits to the local building industry and its suppliers.

    All Residential Real Estate applications are considered in light of this overarching principle.

    So according to the FIRB 12,025 applications approved to increase housing stock – anyone see anything wrong with this picture??

    • …and yet the highest value of approvals was for existing dwellings.

      Could the FIRB explain how these $6bn+ worth of approvals for the purchases of existing dwellings ” increased the housing stock”?

      A review of the role and regulatory failure of the FIRB in the foreign purchases of existing dwellings has to be part of the inquiry into the escalating cost of Australian housing

      • Mining BoganMEMBER

        It increased the housing stock for foreigners who don’t live here.

        One has to read between the lines.

  10. dumb_non_economist

    “I would advocate capturing more comprehensive data so we can at least get a handle on overseas property investments. I do not think we are able to stop globalisation, but we need to understand the implications a whole lot better.”

    Bureaucratic speak for lets pretend to express concern. “Yes. yes, we’re looking into it.”

    “We are essentially becoming part of a more globalised property market and it is unlikely this will change.”

    Because you allowed us to and you don’t want it to change. You’re selling out the average Australian to save your own arses.

    Wankers.

  11. The Patrician

    The real (and as yet unreported) story here is the ongoing regulatory failure of the FIRB.

    The FIRB is required under its charter to “moniter and ensure compliance with” the FATA.
    Where in the annual report does the FIRB report on the steps taken to moniter and ensure compliance with the FATA?
    Why does the FIRB not audit sales of existing dwellings for compliance with the FATA?
    Why doesn’t the FIRB require proof of purchaser’s visa status for registration of the sale of an existing dwelling?
    Why does it take 7 months for the FIRB to report on its approvals of the previous year?
    Why can’t the FIRB report monthly on this data?
    In any of the 12,025 FIRB approvals were the details data-matched with tax/austrac/immigration/AFP data?
    Why hasn’t any media outlet asked the Chair of the FIRB Brian Wilson any of these (or any other) questions about this report?

    Out of interest Brian, why did you choose to release the report on a Friday night?

  12. All of these foreign investors not living in their residential investments will be paying land tax. If they are buying debt free they will also be paying income tax on the net rent without negative gearing. In addition their investment in new construction is akin to an export with all the materials and labour going to a foreigner similar to what happpens with a Camry exported to the middle east. Further the additional construction provides additional rental accommodation in most cases, keeping the cost of shelter lower than it otherwise might be.

    Two sides to every story!

    • All of these foreign investors not living in their residential investments will be paying land tax.

      Eh, what are you talking about? They will pay rates, but no land tax – that only applies to commercially zoned property.

    • Sorry, many Sydney properties bought by wealthy Chinese are under-occupied, or completely shuttered.
      As in other “world” cities (London, NY), non-resident foreign ownership, worsens housing availability for locals.