By PAUL McKENZIE.
The ‘Asian century’, as referred to by recent and current Australian Prime Ministers, is shaping up with Asian business, trade and investment relations filtering through into the Australia real estate market. In their recently released 2013-14 annual report, The Foreign Investment Review Board (FIRB) indicated that real estate applications account for 76% of the value of approvals in 2013-14, with China being the largest investor, 17% of the total value and now ahead of United States, accounting for $12.4 billion foreign real estate.
Data from the FIRB clearly indicates that China is now Australia’s largest foreign investor in local real estate, and Asian countries such as Japan, South Korea, Malaysia and Singapore are now major players in the same field. India not in the league as yet, but is expected to enter this sector in the next few years. A Free Trade Agreement (FTA) with Australia may give it more momentum and interest in investment into Australian real estate.
Since World War II and being the British Empire dominion in the Pacific region, Australia began to be a major player in relations with its Asian neighbours. Post war, all its Asian neighbours turned to developing trading, business, investment, cultural and sporting relations. In recent decades, such relations have lead to our Asian neighbours becoming attracted to property investment in Australia, within our capital cities.
The key reasons why these specific countries invest in Australian property compared to others in the continent or world are because Australia has a very stable government, good security, low interest rates in recent years, good infrastructure, good market and rental growth over the long term that makes property a major asset class in Australia, compared to the rest of the world. Australia also has very precise property management systems in place, with highly skilled property professionals, and major property asset holdings, such as hotels, shopping centres, CBD high rise offices, industrial business parks etc. Michael Yang, Chief Executive of Chinese property website Gifang.com, says “Australia’s stable economy and top schools were the main drawcards for foreign buyers. People believe that this is a safe place for them to invest. The recent strength of the property market had made Australian real estate even more attractive to offshore buyers.”
A prime example of Asian investment in Australian property, is Sydney’s Queen Victoria Building, an icon and very popular city shopping destination with its Victorian era architecture beauty and grandeur that owes its presence to the Malaysian-Singapore based IPOH Group, who were instrumental in creating grand renovations and contributed to the success of the QVB.
FIRB data via its annual report 2013-14 also indicates that approved investment in real estate increased considerably, up to $74.6 billion in 2013-14, compared to $51.9 billion in 2012-13), a big increase by 43.74%.
The table above reflects a strong demand and the attractiveness of Australian real estate by overseas investors. China is now the largest source of proposed foreign investment in Australia, mainly driven by a large increase in residential real estate approvals. The other major sources of proposed investment were the United States, Canada, Malaysia, and Singapore, the last two replacing the United Kingdom in the top five sources of investment, clear proof that the ‘Asian century’ is filtering through in business, trade and investment, with its Asian neighbours.
To summarize in relation to different property sectors and capital cities: Residential property accounted for $34.7 billion or 46.5% of the FIRB approvals in real estate during 2013/04. This is made predominately in the FIRB approvals legal framework, new dwellings, apartments, townhouses and vacant land (construction within 24 months). There is also permitted existing residential property from overseas nationals (i.e. from New Zealand), who were given approval that complied with the FIRB’s legal framework.
Asian investors has made ingenious and rewarding inroads into purchase of commercial propertie
Commercial property accounts for $39.88 billion or 53.5% of the Foreign Investment Review Board (FIRB) approvals in real estate during 2013/04. This is made predominately in the FIRB approvals legal framework, wherein an overseas investor acquiring an interest in developed commercial real estate (for example, shopping centres, office buildings, warehouses, hotels and motels) that is valued at more than the applicable monetary threshold ($54 million or $5 million if heritage listed, unless from United States or New Zealand, who have higher thresholds) are required to notify and get prior approval before purchasing. For commercial development, foreign persons need to apply to buy or take an interest in commercial land for development, regardless of the value of the land. Such proposed investment is normally approved subject to conditions (such as, that construction begins within five years)
New South Wales with Sydney remains the premier state for foreign investment into Australian real estate, accounting for $22.67 billion or 30.4%. NSW is followed by Victoria with Melbourne, $21.4 billion or 28.7%; Queensland with Brisbane, Gold Coast, Sunshine Coast and Cairns, $4.76 billion or 6.38%; and Western Australia with Perth, 3.85 billion or 5.16%.
Australia’s big four capital cities, Sydney, Melbourne, Brisbane and Perth, are the major foreign investment real estate players, who are also major players in Asian business, trade and investment relations.
Looking the recent trends of Australia merging into the ‘Asian Century’ with investment coming from Asia into the Australia property market, we have the following comparisons from six, ten and twenty years back (Source, 2013/14 FIRB annual report) –
What is interesting from this above data, is the value of foreign investment in Australian real estate, from %10.65 billion twenty years ago in 1993/94, to $74.6 million in 2013/14. This is reflected in the legal framework changes over the years, opening up to foreign investment of real estate in Australia to our major trading partners in the last twenty years, with countries like United States, United Kingdom, New Zealand, Canada, China, Singapore, Japan, Germany etc. What is also more interesting, is that China is now number one over the United States, while other Asian neighbouring countries are stronger in foreign investment of real estate in Australia, including countries such as Singapore, Malaysia, Hong Kong and Korea (South). The United Kingdom continues to be major player in the top ten after twenty years, with Australia’s British-Commonwealth heritage ties. Germany and Holland also remains strong, as are Australia’s links to the European Union. Other European countries, like Sweden are no longer major players, focusing more on the major players in Europe. Obviously, from the data over twenty years, our Asian neighbours lead by China have become the major players, making it the ‘Asian Century’ for Australian in foreign investment into local real estate.
According to Austrade publications (Source, Department Foreign Affairs & Trade), “Australia has traditionally depended on foreign investment to supplement domestic savings. This capital has helped Australia become the world’s 12th largest economy, with 23 years of uninterrupted growth. International capital has enabled Australians to enjoy higher rates of economic growth, employment and standards of living than could have been achieved with domestic capital alone.” Foreign investment stimulates economic activity – research has found that a 10 per cent increase in foreign investment in Australia could lead to a more than one per cent increase in GDP by 2020.
Australia’s focus on its Asian neighbours, particularly China, Japan, Korea (South), Malaysia and Singapore, have led to strong business, trade and investment relations, which have become major players of foreign investment in Australia real estate. Looking at the above benefits of foreign investment in Australia real estate is reflected in a prime example of a success story, Sydney’s Queen Victoria Building as cited in part 1. Acquired years ago by the Malaysian-Singapore based IPOH Group who were instrumental in its grand renovations, and the result is that the QVB is now a Sydney icon and popular city shopping destination, with its Victorian era architecture beauty and grandeur.
