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Foreign investment impact on your local housing market

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By Lyndsey Douglas

Are you being priced out because of overseas buyers, or is the unfounded and the blame lies elsewhere?

When you take a look at the Australian property market, as a first time home buyer, it can be easy to despair. For example, towards the beginning of 2016, Sydney's median dwelling value was recorded by CoreLogic at $932,910. In Melbourne, it was $776,060. Perth and Canberra sat above the $600,000 mark, while Brisbane and the Gold Coast weren't far behind.

It's a lot of money to manage, even if you are borrowing the bulk of it with a home loan. However, one of the fundamentals of wealth management through property is structuring your finances and a home loan to set you up for the long term. 

But is foreign investment making this even harder? It's a topic that has dominated the headlines over recent months, as people debate whether it is good or bad for local property. So are you being priced out because of overseas buyers, or is the unfounded and the blame lies elsewhere? 

The facts on foreign investment in Australian property

In its 2014-2015 annual report, the Foreign Investment Review Board outlined the growth of overseas buyers in the local market. There were 37,347 approvals for foreign purchase of real estate in this financial year, compared to 23,428 the year before.

China emerged as the biggest contributor to foreign investment over 2014-2015.

But at the same time, the actual value of this investment nearly doubled, going from $34.7 billion for residential property to $60.8 billion over the course of a year. While the United States is still the biggest source of investment overall, China emerged as the biggest contributor to foreign investment over the specific 2014-2015 period.

While very few proposals were rejected over this period, the tightening of legislation in 2015 saw many properties undergo a forced sale as it breached the law. So, there is every chance that future reports show a reduction in foreign investment as people become more cautious about whether they are investing between the flags or not.

How does this impact your financial planning?

So overall, there is a significant increase in overseas buyers looking to Australia for their investment. But does this mean local house hunters are being priced out of the market by people from abroad? According to the Property Council of Australia's Ken Morrison, this isn't actually the case.

In a May 2015 press release, he supported the push for tighter ruling on foreign investment, as transparency and fairness was necessary for a fair housing market. However, he added that overseas buyers were responsible for helping out one of the biggest problems in Australian real estate: supply.

"Foreign investment is underpinning our current record growth in new housing construction," he noted.

"[It] has a big dividend on new housing stock with every newly constructed home purchased by foreign investor enabling up to four other homes to be built."

Considering that housing supply is an ongoing problem for the property market affordability, it can be argued that foreign investment is helping to aid those currently unable to keep up with prices rises in real estate.

foreign investment

Where to from here?

It is difficult to discern exactly what shifts will occur in the foreign investment market over the coming years. As we come off the back of historically low interest rates which will eventually crawl back up, there may be a significant pumping of the brakes for people right across the globe.

Whatever the case, it remains crucial to get the right financial planning advice when you are preparing a property investment strategy. Foreign investment activity is only one part of the equation - realistically, your own financial standing should dictate when the right time to buy is.

For more information on making the most of what you've got, get in touch with a Yellow Brick Road local representative.

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