Key Points
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On 15 February 2019, the Treasurer presented the Foreign Investment Review Board’s Annual Report for 2017-18.
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This report indicated that the interests of foreign investors into the Australian residential and non-residential markets are in a state of decline.
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A primary mover for this decline has been domestic and foreign government policies on foreign investment.
On 15 February 2019, the Treasurer presented the Foreign Investment Review Board’s Annual Report for 2017-18. This report highlighted that the interests of foreign investors in Australian residential and non-residential markets have diminished substantially over the past few years. This erosion of foreign interest has been primarily instigated by Australian and foreign governments’ policies against foreign investment.
Residential Real Estate
The value of applications for foreign investment in Australia’s real estate market has plummeted over the past few years. Proposed investments into the Australian residential property market are currently $12.5 billion, signifying a $17.5 billion plunge from its value of $30 billion in 2016-17.
The overwhelming cause of this decline has been a reduction in new dwelling approvals. This reduction has been stimulated by the Government’s policy of limiting foreign investment into new Australian dwellings from potentially 100% to 50%.
Another factor has been the recent influx of investment regulations imposed by the Chinese Government on Chinese investors. These regulations have restricted the foreign investment of Chinese investors into countries like Australia.
This reduction in Chinese foreign investment has caused the value of the United States’ proposed foreign investment into Australia ($26.5 billion in 2016-17 to $36.5 billion in 2017-18) to overtake China’s proposed foreign investment into Australia ($38.9 billion in 2016-27 to $26.5 billion in 2017-18) for the first time since 2012-13.
Business Investment
Foreign investment into Australian businesses has also encountered a period of net decline. This is most prominent in the manufacturing and energy industries which have experienced a 59.3% fall in the value of investment approvals. However, this has been partially offset by increases in the value of investment approvals in other sectors, such as the services industry (11.8%).
The increasing interest of foreign investors into the services industry is surprising particularly because this industry has recently been heavily scrutinised in relation to its protections of personal data and data security.
However, these regulations, in combination with the tightening Chinese foreign investment regulations, are likely to have contributed to the overall decline of foreign investment into Australian businesses.
Audit Results
The report also outlined the Australian Taxation Office’s role as an oversight body for foreign investment.
In 2017-18, the Australian Taxation Office undertook around 1400 residential real estate investigations. These investigations discovered that around 40% of properties that were investigated had breached the Foreign Investment Compliance Framework.
Conversely, business audits by the Treasury department have indicated that foreign investors in Australia business have had a high level of compliance with the foreign investment framework.
The 2017-2018 Annual Report by the Foreign Investment Review Board is available
here
Post by John Kell and Joshua Yan