How does foreign investment impact Sydney house prices?

With housing affordability at an all-time low, and an election on the way, we are hearing more about foreign investment in Sydney and how it impacts the housing market. There’s even talk of cutting immigration to reduce pressure on local housing stocks. But is this the solution? 

Overseas ownership trends

Australia is an immigration nation, with some 40 per cent of the population born overseas. And with falling birth rates and an ageing population, we are highly dependent on immigration to provide aged care and support for our biggest industries and exports – university education, mining, tourism and agriculture. 

As for foreign investors, unsurprisingly, Melbourne and Sydney are the most popular cities. Those moving here will live in a busy city centre to begin with, often for work or study, before moving to wherever they can afford or feel most comfortable once they settle into permanent residency. 

Will reducing immigration reduce house prices? 

While politicians may talk about reducing immigration to address our housing shortage, many economists argue that this will not solve the problem. We need workers to support our economy, based as it is on jobs that can only be done here in Australia, and overseas workers provide the majority of care for our ageing population. 

Although overseas students are sometimes blamed for the rental crisis, in fact, they make up only six per cent of Sydney’s rental market. International students are also essential to our economy, contributing $25.5 billion to the Australian economy, according to the Property Council of Australia. What is needed is more purpose-built student accommodation to relieve pressure on the private rental market, not fewer students.

While it makes a good headline, dramatically cutting immigration is not a viable solution. The impact on the economy and society would be disastrous, and politicians know it. 

Foreign ownership trends

Foreign investment is a small percentage of the housing market. Most buyers are from China, Hong Kong and India, with transactions reaching $6.6 billion in the last financial year – around 1% of all purchases in Australia, and a drop of $1.3 billion from the $7.9 billion recorded the previous financial year. 

Recent reports suggest that foreign investment is actually falling. According to the Foreign Investment Review Board, Chinese investors have been at the forefront of the decline in foreign investment in Australian residential real estate during the 2023-24 financial year. Australia is simply becoming too expensive for investors, who can only buy brand-new homes and must pay additional taxes, fees and duties, and higher mortgage rates, on their purchases. 

The offshore investors that were common in 2014 to 2018 are no longer buying, with 98% of buyers purchasing for their own use or that of their children.

What are the other reasons for the housing crisis? 

Many factors are to blame for the current housing crisis, and the solutions will take time and effort to implement. While overseas arrivals do put pressure on local housing stock, we are also struggling to build enough new houses.The housing shortages and high prices currently being experienced in Australian capitals, including Sydney, are also because the cost of building and shipping has soared, as have the costs of tradespeople. Additionally, many builders are locked into contracts they signed when prices were lower, and are now facing insolvency. 

The rise of smaller households, with people living in houses larger than they need, also impacts availability of housing. While many people would like to downsize, it is difficult to find high-quality homes to move into, and buying off-the-plan is no longer a straightforward option with builders struggling to complete projects. 

Having said all that, it is possible to buy and sell successfully. As a real estate professional with many years of experience, I can help you navigate a home sale with confidence and move on to the next chapter of your life. 

Are you thinking of downsizing or selling?

These are interesting times to be entering the real estate market, but if the time has come for you to sell, talk to us. We can help you navigate your home sale with ease and confidence, and work with your buyers to ensure a seamless transition into your new home. Feel free to get in touch with Page&Co today.