Look before you leap on foreign property investment controls

Australia seems to be working itself into a lather about foreign investment in real estate.

A parliamentary inquiry is considering new higher stamp duties and transaction surcharges for foreigners, and relatively benign comments from the Reserve Bank have been over-egged by alarmists.

The farcical level of the debate was highlighted in the Financial Review last week, with an underbidder lodging a formal complaint with FIRB despite the fact that the successful purchaser was an Australian resident. They just looked Chinese!

The facts don't justify the angst.

While the data is not complete, only around five per cent of residential real estate purchases are to foreign buyers. While this will be higher in some sub-markets, this is not a level which would appreciably shift prices.

In fact foreign investment helps ease supply constraints by increasing the rate of pre-sales, therefore improving project viability and pulling through supply.

It is also true that much of the house price heat has been limited to two markets, one of which is Sydney where there is still an undersupply being worked through.

Policy makers and regulators need to think hard before taking action which could needlessly harm growth in the property sector and therefore the broader economy.

Best to look before we leap to new foreign investment controls.