The inquiry will examine the current policy, administered by the Foreign Investment Review Board, which allows foreigners to invest in new build property and if this needs to be changed so that new homes being built in Australia can benefit local people, especially first time buyers.
‘It is the government’s policy that foreign investment in residential real estate should increase Australia's housing stock,’ said a spokesman for the FIRB.
‘That is, the policy seeks to channel foreign investment in the housing sector into activity that directly increases the supply of new housing and brings benefits to the local building industry and its suppliers. All residential real estate applications are considered in light of this overarching principle,’ he added.
A foreigner should notify the government and get prior approval to acquire an interest in certain types of real estate. An interest includes buying real estate but can also include obtaining or agreeing to enter into a lease, or financing or profit sharing arrangements.
Most foreigners are limited to buying new property. But there is concern that too many foreign buyers means that local people are being priced out of the housing market in some areas.
The most up to date figures show that in 2013, some 74% of overseas investment into residential developments in Australia originated from China, Singapore, Hong Kong, Malaysia and India.
Sydney and Melbourne attract the most interest, with some apartment blocks in those cities 100% owned and occupied by Chinese nationals.
A recent Credit Suisse report estimated that 18% of new homes in Sydney and 14% in Melbourne are being bought by Chinese buyers, with up to $44 billion of investment expected in the seven years to 2020.
The Credit Suisse report also found Chinese buyers are becoming the 'marginal purchasers', that is the people willing to pay more than most, consequently pushing housing market price expectations upwards.
Also a new report from international real estate firm Knight Frank in conjunction with KPMG and King & Wood Mallesons, found that Australia has maintained its position as the most significant recipient country of Chinese outbound direct investment in property.
Whilst the mining sector has received the largest share of Chinese investment in Australia, there has been a shift emerging in recent years with agriculture and real estate sectors increasingly gaining a larger portion of Chinese funds.
These new opportunities for Australian developers have created local construction jobs and growth for local building suppliers with building approvals trending upwards over the past 15 months.
However concern still surrounds the occupancy of these new properties with a high number of Chinese nationals accommodating the new stock while some still remain unoccupied despite the completion of the project.
Knight Frank says that Chinese buyers are known to willingly pay inflated prices in key markets across Australia being attracted to the security of a stable political and economic environment, transparent property market and also avoiding the restrictions and taxes imposed on property investment back home.
These factors continue to misrepresent the data collected locally across the industry, skewing the housing stock available for the projected population growth across Australia while further fuelling the fear of unsustainable current prices for the local market.
The findings of the inquiry are expected in October 2014.
