Falling Out of Favor
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- Authors: MARIA PETRAKIS
- Published: December 3, 2024
Overview: shifting attitudes toward foreign residential buyers
- Some countries are turning against foreign buyers as soaring property prices become political.
- “Foreign ownership is not a big part of the mess,” said Alan Kohler, author of The Great Divide: Australia’s Housing Mess and How to Fix It. “There isn’t much foreign ownership of empty houses. The common thread may be [high] immigration versus low construction.”
- Knight Frank’s 2024 Wealth Report: as 70 countries held elections in 2024, wealthy people seeking properties abroad faced a global landscape of restrictions on foreign buyers and holiday rentals, planning regulations, and property taxes.
Case study — Australia (Kensington Road, Melbourne)
- High-end example: 9 Kensington Road, built in 1890, four-bedroom Victorian terrace house priced at $A 8 million (US$5.4 million).
- Nearby example: apartment at No. 10 sold for $A 855,000, about $A 70,000 above the top asking price; buyer purchased it for his daughter.
- Housing finance and affordability indicators (ANZ Bank data and related findings):
- The proportion of income required to service a new 25-year mortgage is at a record high of 50.3 percent.
- It takes 10.6 years on average to save for a down payment on a home.
- Demographics and migration:
- Australia’s population hit 27.1 million on March 31, 2024, according to the Centre for Population.
- Annual population growth slowed from a peak of 2.6 percent in July–September 2023.
- Net overseas migration was 510,000 in the year ending March 31, 2024, and 134,000 in January–March alone.
- More than 80 percent of new arrivals to Australia are renters (ANZ estimate).
- Policy responses in Australia:
- Government tripled fees for foreigners to buy existing houses.
- Government doubled taxes for those who leave dwellings vacant.
- The government imposed a cap on international student numbers in August (presented as a measure to alleviate rental market pressure).
- Market behavior:
- “Bank of Mum and Dad” dynamics: parents using equity to help younger buyers—illustrated by the buyer at No. 10.
- Jones Lang LaSalle Q2 2024: premium suburbs close to Sydney’s CBD experiencing strong demand for luxury boutique projects driven by “downsizers.”
- Kay & Burton (Ross Savas and Jamie Mi) report continued demand in the luxury segment; Jamie Mi: “I haven’t seen a significant drop in confidence among foreign buyers. Top-end buyers are less concerned with additional fees or taxes and remain focused on securing high-value assets.”
Global policy shifts and golden visa programs
- Golden visa programs (residency or citizenship in return for investment, commonly in property) expanded after the global financial crisis but are now under scrutiny:
- Greece launched its golden visa program in 2013.
- Portugal offers arrangements for “non-habitual residents,” who are taxed at lower rates.
- Spain announced in April this year that it would wind down its program.
- The European Commission considers citizenship-by-investment plans illegal under EU law and has taken Malta to the Court of Justice and challenged its program.
- New Zealand passed a law preventing foreigners from buying some residential properties in 2018.
- Canada’s two-year ban on foreign ownership, due to end January 1, 2025, has been extended to 2027.
- Singapore doubled the stamp tax paid by foreigners to 60 percent to ease housing pressures.
- Dubai is offering residency in the United Arab Emirates to those who invest in real estate, are entrepreneurs, or have specialized skills (such as doctors or software engineers).
Drivers of housing affordability stress
- Multiple factors beyond foreign buyers:
- High immigration and net overseas migration increasing demand for housing.
- Low construction and constrained supply driven by zoning and planning restrictions.
- Rising public debt and diminished housing affordability in advanced economies, creating political scrutiny of wealth and property.
- Intergenerational equity effects: homeowners who benefited from decades of house appreciation provide family support to younger buyers, amplifying price dynamics in premium segments.
IMF and expert recommendations / policy implications
- IMF on Australia: a comprehensive approach is needed to address the significant housing supply shortfall, including:
- More construction workers.
- Relaxed zoning and planning restrictions.
- Re-evaluation of property taxes (including tax concessions to investors).
- Policy trade-offs and political economy:
- As public debt escalates and housing affordability diminishes across advanced economies, policymakers are poised to scrutinize wealth and property more intensely, affecting strategic considerations for ultra-high-net-worth individuals (Kate Everett-Allen, Knight Frank).
- Countries are diverging: some tightening restrictions on foreign buyers and golden visa incentives, while others continue to offer residency tied to real estate investment.
Source: Falling Out of Favor, F&D Magazine, MARIA PETRAKIS, December 2024.
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