The Housing Industry Association (HIA) warned the governments to “proceed with caution” regarding the proposed punitive measures on foreign investors. Why? The risk of an abrupt and rapid decline in home construction across Australia.
The 2017 winter edition of the National Outlook report quotes the HIA’s claim that foreign investors bring up to $70 billion into the Australian real estate market every year. They predict that federal and state punitive measures such as clamping down on lending investors and interest-only borrowers, visa rules changes, and stricter laws for foreign investments are potentially problematic and could negatively impact the Australia housing sector.
Principal economist at the HIA, Tim Reardon says that “Foreign capital is highly mobile and if it is forced from the market rapidly, it could accelerate the downturn in the sector unnecessarily.” This is a substantial risk if poorly thought-out policies are accepted to restrict foreign investment.
Mr. Reardon accentuated the significant impact such restrictions demanded by the Chinese government related to outgoing real estate investments could have on home building in Australia.
He stated that foreign investment showed substantial growth from 2012 of over 400 per cent over four years and that Chinese investments account for around 50 per cent of Australia’s total foreign property investment.
“Foreign investors have contributed to activity and employment in metropolitan areas, building the supply of new housing stock and easing pressure on rental markets,” Reardon said. He continued by stating, “The housing sector has already stepped back from its role in driving the Australian economy and now is not the time for governments to hit the industry with punitive changes.”
Reardon concluded saying, “Governments of all jurisdictions should proceed with caution when imposing new punitive measures on this segment of the market.”
The HIA Forecast
The HIA predicted that a minor decline in building would occur, then bottom out in 2019. A downturn of 24.5 per cent in new dwelling starts has been predicted by the HIA, starting between 2016 and 2019.
Shane Garrett, HIA senior economist said, “The downturn that’s underway is also likely to be unique in a number of other ways.”
Garrett said, “Its forecast trough of 174,630 starts during the 2019 calendar year could easily be the higher ever bottoming-out point for a housing cycle. In fact, the likely low point would be higher than the peaks of several previous housing cycles.”
Garrett noted that the present downturn related to a starting point is already the “highest peak on record” and that “The indications are that the contraction ahead will be relatively benign, involving an orderly and fairly smooth reduction in new home building starts, with the eventual trough still representing an elevated level of activity by historic standards.”
How would this potential decline in foreign investing due to new restrictions affect homeowners, builders, real estate professionals, and the overall Australian economy?
It’s important to recognise that restrictions on foreign investments and construction affects everyone at various levels in Australia.
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