Australian Crackdown on Foreign Property-Buyers Intensifies
The crackdown is just a bandaid. The real reason for high Australian property prices is land-use restrictions supported by a devil's combination of NIMBYs and Greenies -- and to some extent farmers. Getting land released to house a growing population -- growth mainly caused by high immigration -- is therefore usually something of a battle -- often a costly battle with costs being passed on to home buyers.
A sensible loophole in the restrictions, however, is that foreign buyers can readily invest in new builds. That should encourage new builds and counter the unemployment effect of reduced mining activity.
One might also note with some amusement that 12 properties affected so far will hardly have macro effects
And, finally, the overseas buyers are almost in the high-end market. So the restrictions help only affluent Australians, not the average Joe. A sad policy solution to a real problem. A more effective solution would be a reduction in net immigration, maybe even a complete moratorium -- JR
A government clampdown on illegal investment in Australian real estate has broadened, with almost 500 properties worth more than 1 billion Australian dollars (US$713 million) in total under investigation and more foreign buyers forced to sell properties.
The government has been under pressure to rein in an investment-driven surge in home prices in Australia’s two biggest cities Sydney and Melbourne, amid growing criticism that wealthy Asian buyers are making the property market increasingly unaffordable.
Treasurer Joe Hockey said divestment orders have been served on five properties across the country, forcing their owners—who hail from Singapore, Indonesia, the U.K. and China—to sell homes. He added that the crackdown is continuing despite political turmoil this week that saw Malcolm Turnbull replace Tony Abbott as prime minister.
“The purchase prices of the properties range in value from A$265,000 to A$8.1 million,” Mr. Hockey told reporters in Canberra. “The foreign investors involved either purchased established property without Foreign Investment Review Board approval, or had approval but their circumstances changed, meaning they were breaking the rules,” he said.
The central bank has warned the property boom is unbalanced and potentially dangerous to a fragile economy, as economists become increasingly nervous about the possibility of the country entering a recession for the first time in 24 years.
Australia’s economy grew by 0.2% in the second quarter from the first three months of the year and 2% from a year earlier, its slowest quarterly growth in four years in the second quarter. The Reserve Bank of Australia is forecasting 2.25% growth for the year, but a dip below 2% could put the prospect of an interest-rate cut back on the table.
Many Australians fear cashed-up foreign investors could put homeownership out of reach of much of the population. Mr. Hockey told The Wall Street Journal last month that equity-market turmoil in China could drive even more Chinese buyers to seek havens by investing in Australian property.
China last year overtook the U.S. as Australia’s largest source of investment from overseas, with a total of A$27.6 billion last year, according to FIRB, the foreign-investment watchdog. Real estate accounted for almost half of that.
The latest divestment orders bring the number of properties hit by the crackdown to 12. In March, Mr. Hockey ordered a Hong Kong-based buyer of a A$39 million Sydney mansion to sell after investigators said it was purchased illegally.
This time, the properties netted by the crackdown are scattered across the country and include homes in the cities of Perth, Sydney, Adelaide, Brisbane as well as the Gold Coast, in tropical Queensland state.
Mr. Hockey said all five owners had voluntarily come forward to detail their investments, meaning they would have a year to sell their homes rather than the usual three months, under an amnesty offer announced by the government in May.
Mr. Hockey could be replaced as Australia’s chief economic minister after a leadership putsch in the conservative government that this week installed Mr. Turnbull as prime minister. Among the possible candidates to become treasurer is Scott Morrison, regarded as one of the government’s most effective ministers.