John McGrath - Foreign Buyers Of Australian Homes Almost Triple Their Budgets
The number of foreign citizens who applied to buy an established property in Australia to live in dropped by 16% in FY20 but they spent more than 2.5 times as much money on their homes.
The latest annual report from the Foreign Investment Review Board shows 1,105 foreigners who either moved here from overseas in FY20 or were already living here applied to buy an established property to make their primary residence.
They spent a collective $4.6 billion on these homes, or an average $4.163 million per property. This was a big increase on the FY19 average of $1.371 million and well above previous years ($1.486 million in FY18 and $1.494 million in FY17) too.
The level of capital invested by overseas migrants in homes for themselves indicates not only do they want to stay long term, so they’ve spent more money on higher quality residences, they also have faith in the resilience of our market to withstand a second major global event in just 15 years.
Foreign residents are not allowed to buy established properties unless they live here as temporary residents on work or major investor visas, in which case they can only buy one existing home to live in.
It’s common to see wealthy migrants buying prestige homes because they’re confident they can make money in our market, so they’re willing to park a large percentage of their wealth in the one established premium property they’re allowed to buy.
Foreigners living overseas are also allowed to buy Australian real estate, however they can only purchase new or off-the-plan properties for investment.
Total foreign investment in residential property in FY20, including new and established properties, was at its highest level in three years at $17.1 billion in FY20, up 15.5% on FY19. However, this was well down on FY17 when foreign purchaser approvals totalled $30 billion.
Most investment (for all property including new and established residential and commercial) came from the US at $13 billion, followed by Singapore at $9.5 billion and mainland China at $7.1 billion.
There’s a big drop from there, with Germany fourth at $3.7 billion then Canada at $3.3 billion.
I expect to see more foreigners wanting to set up home in Australia once the international border lifts. Despite what’s happening with the Delta wave now and current lockdowns, we are seen as an overall COVID management success story with low infection rates as compared with our northern hemisphere counterparts, and this has reminded the world that Australia is a great place to live.
Wealthy foreigners are not the only people investing big money into prestige property these days.
Thousands of expats have chosen to come home for good, after years of making great money overseas, so they’re bringing back very healthy budgets to spend on their next long term home.
Meantime, local prestige owners have joined the upgrader movement and are leveraging unspent overseas travel budgets on even better properties on bigger blocks that provide a lifestyle at home. They’re looking for pools, tennis courts, boating facilities, home gyms, home cinemas and more.
As a result, demand for prime residential properties in Australia (top 5% of each market by value) is at an all-time high, according to research from global agency, Knight Frank published earlier this month.
In the first quarter of 2021 - and for the second consecutive quarter - there was a new record level of prestige sales in Australia’s major cities, with 1,429 prime properties sold in the March quarter. This was a 58% increase in sales volumes compared to a year ago.
This has resulted in 2.9% growth in Australian luxury home values in the year to March 31, 2021.
The typical buyers of Australia’s most expensive properties are ultra-high net worth individuals, who have a net worth of US$30 million or more. Knight Frank reports that our local UHNWI community grew by 10.9% in 2020 to 3,124 people, well above the 2.4% global average for 2020.
This is great news for our country because it means more jobs, with 43% of our UHNWIs deriving their wealth from successful major businesses. About 33% of our UHNWIs live in Sydney, 20% in Melbourne, 11% in Perth and 10% in Brisbane, according to Knight Frank.
Australia is one of the fastest growing markets worldwide in terms of income growth and property price growth, according to global wealth researchers, New World Wealth.
Strong inward migration has contributed to this, with our local community of high net worth individuals (net worth US$1 million) expanding to 390,000 millionaires by the end of 2020.
About 90,000 of them are overseas migrants who have moved here over the past 20 years.
Expect to see more of them soon!
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
This article originally appeared in The Real Estate Conversation (July 26, 2021)
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