Foreign investors, especially overseas students, are changing the property market in Australia

New rules making it easier for foreign residents to invest in Australia real estate, along with an influx of overseas students, are changing the property market – according to an article in SMH.

Changes to foreign investment policy around acquisitions of residential real estate by foreign persons, in late 2008, has come under fire in the media recently for its purported effect on the housing market. Stories of prices being pushed up by overseas buyers are causing some people to ask whether the relaxation needs to be re-examined.

Until the 2008 changes, the most common way for overseas residents to buy Australian properties was to purchase ”off the plan” – that is, based on the architects’ drawings, and often before construction began, or while it was in progress.

Under the old rules, developers could sell up to half of a project to foreign investors. Many projects that might otherwise have been unviable not only came to fruition but prospered. In fact, it would probably be true to say that Melbourne’s boom in inner city residential apartment developments throughout much of the ’90s had a lot to do with the influx of foreign investment.

Sources of overseas investment interest in Australia are changing. In the early days most of the selling activity took place in Singapore and Indonesia. These days China is very much at the forefront, and given the increasing affluence of its citizens, there is no reason to believe it will lessen soon.

Perhaps the most significant change gives temporary residents the right to buy established dwellings for use as a principal place of residence. The definition of ”temporary resident” includes skilled workers and executives.

Notification requirements have also been abolished, along with some conditions on the development of single blocks of vacant land. Australian developers are no longer banned from selling more than half of a new development to foreigners.

In practical terms the impact of these changes is, first, that established real estate, a category of property not previously available to foreign residents, has now become available, and, second, that students are no longer restricted to a maximum $300,000 purchase price.

Many students who are in Australia either have the objective, or are in the process, of applying for permanent residence once they have finished their studies. Once this is achieved, the next step for many is to apply to have their parents join them under the Contributory Parent Visa category. For students, the ability to buy established real estate without any monetary limit means that they can now buy a family home for the future.

When you consider that Australia has 10 per cent of the world market for higher education, and that the number of international students in higher education alone has risen from 21,000 in 1989 to around 200,000 in 2007 – with Victoria and New South Wales receiving the largest numbers of students – it is clear how important education is to our economy.

In Victoria alone it is estimated that for the year 2008-09 the income generated from student enrolments was $5.4 billion. Clearly the pressures associated with the need to house so many people are bound to have an impact, and the issues that arise are possibly part of the larger debate about what our optimal population should be.

One obvious consequence of allowing foreign residents to buy existing real estate, as opposed to off-the-plan developments, is a movement out of the inner city and into the suburbs. It was noticed recently that there is an increased foreign demand in affluent suburbs such as Toorak, Camberwell, Hawthorn and Kew, where previously there was little.

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