Foreign investment in residential property has been attracting a steady drip of mainstream media attention for months but is now starting to generate heat for the Government. What was hitherto a hot topic on real estate and property investment blogs and a call to action on xenophobic websites is now breaking out into a parallel issue to the asylum seeker debate: the Rudd Government relaxed the rules on foreigners buying residential property and now Australians can’t buy a home in their own country.

Glenn Stevens’s statement that the RBA is “giving some attention to” the issue last week will only accelerate media interest.

Most of the attention has been directed at Chinese buyers. In October last year, the Herald-Sun ran a piece on “the Asian buying spree” in the top-end property market. Last week, Adele Ferguson in the Fairfax papers reported on a survey showing concern among investors about Chinese investment. Blogs and news reports convey the compelling image of young Australian couples being outbid by Chinese investors who can “borrow at 1%”.

How anyone knows they’re being outbid by investors from China rather than fourth-generation Asian Aussies is unclear, but you get the picture.

The issue has also attracted the Housing Bubblists. Adam Schwab had a go at the issue in Crikey back in September, suggesting there may have been a link between Labor’s receipt of property developer donations and its relaxation of the foreign investment restrictions. In February, Steve Keen accused the Government of “importing a bubble” from China.

There seems to be a tinge of Sinophobia to all this. In Cairns last year, there seemed to be no concern about South African, British and Japanese investors being the most active in the Cairns residential property market. Even the Japanese, the target of considerable western fear and loathing two decades ago, now seem to be considered friendly, possibly because the idea of Japanese economic dominance now looks silly. The concern is about a flood of Chinese money.

You can see how this could turn nasty for a Government battling the myth that it has opened the door to asylum seekers. Prior to the election, Labor professed great concern about housing affordability, only to propose several Mickey Mouse solutions. Housing supply is now a key COAG issue, with Wayne Swan leading the nation’s Treasurers in an effort to address the Gordian knot of land supply, development approval processes, infrastructure planning, taxes and charges and residential development finance.

So what were the Rudd Government’s changes that were supposed to have opened the floodgates? They were announced in December 2008, with the regulations implementing them commenced at the end of March 2009.  They were:

  • Hotels and resorts would be treated as commercial, not residential, property under the Foreign Investment Review Board.
  • Temporary residents were no longer required to notify proposed purchases of residential property to FIRB, but still banned from buying more than one property.
  • The temporary resident exemption was expanded to include shorter-term visa holders, but tourists and certain business visas remained banned.
  • Student visa holders were no longer limited to property purchases under $300,000.
  • FIRB approval processes were accelerated.
  • Foreign purchasers of vacant land required to start development within two years rather than one year, recognising that the previous 12-month period was often extended.
  • The condition that no more than 50 per cent of new dwellings in a development be sold to foreign buyers was removed, as long as developers market locally as well as overseas.
  • Foreign companies allowed to purchase established dwellings for the use of their Australian-based staff.

The changes were made at the depths of the GFC and intended in part to remove impediments to foreign investment in new housing stock, given the parlous state of investment in the property sector at that point. When making the changes, then-Assistant Treasurer Chris Bowen said they were intended to implemented the recommendations of Gary Banks’s 2006 deregulation taskforce, which criticised the restrictions on foreign investment. At that stage, those restrictions had been unchanged since 1989.

Tomorrow: how many foreigners are buying our houses — and why that’s the least of our housing problems.