Are Offshore Developers Harming Australia’s Property Industry?


The impact of offshore developers on Australia’s property market continues to divide key industry players.

While some local developers see offshore interest as an opportunity for collaboration, others are concerned by the increased competition this brings to the market.

Australia’s Foreign Investment Review Board registered a dramatic increase in foreign investment particularly in residential real estate in 2013-14.

While approved investment in commercial real estate increased from$34.8 billion in 2012-13 to $39.9 billion in 2013-14, proposed investment in residential real estate more than doubled, up from $17.2 billion to $34.7 billion in 2013-14.

With 2014-15 figures due out soon expect to show a continued increase in foreign investment, it’s not surprising the impact is being hotly debated in the property industry.

Director of finance for ICD Property Matt Khoo supports offshore developers operating in Australia and the opportunities provided by increased international business.

Matt Khoo[/caption]ICD has a partnership with Sino Ocean Land– one of China’s largest property developers. Sino Ocean Land is ICD’s joint venture partner for Eq. Tower– a 63-storey tower currently under construction in Melbourne’s CBD.

“Strategically, we saw a good alignment of interests … Sino Ocean Land are looking to expand investment internationally but do not have a presence or knowledge locally,” Khoo says.

“For ICD, we get the benefit of a strong sponsor for financial backing and marketing, as well as intelligence from an apartment market far more mature than ours.”

In 2013-14, China became the largest source country for investment in Australian real estate with $27.7 billion approved, overtaking the United States ($17.5 billion), Canada ($15.4 billion), Malaysia ($7.2 billion) and Singapore ($7.1 billion).

But not everyone in the property sector sees the increase in foreign investment as positive for the local industry.

Pressure on local developers and prices

Developer Paul Little, founder of Little Projects and former boss of transport and logistics company Toll Holdings, believes some Asian developers are driving up prices paid for key development sites, increases which may be passed on to customers.

“What is of more concern to us is the offshore buyers being willing to pay higher numbers for sites that perhaps the local developers can or want to," he said in The Australian Financial Review.

Paul Little[/caption]Little also added that customers may not always be getting the best product from companies who are not committed long term to Australia.

CEO of Nick Khachatryan markets both local and internationally created developments.

He believes international developers invite short-term employment opportunities for architects and construction workers, but says there are potential long-term repercussions for Australian-based developers.

“The biggest threat is due to the availability of almost unlimited liquid funds, enabling foreign developers to purchase any site, even the most premium ones, unlike local developers who have to borrow commercial loans to fund the projects,” Khachatryan says.

“Offshore developers bring a competitive angle to Australian developers, but in most cases, the scale is tipped in foreign developers’ favour due to the large liquid funding available to them.”

“Too much offshore development over local development could cause closure of local small businesses,” says, Daniel Cohen, director and co-founder of First Home Buyers Australia.

Daniel Cohen[/caption]Money expert at Michelle Hutchison agrees.

“Offshore development in Australia can be detrimental to Australian businesses if, for instance, offshore developers price out local builders,” Hutchinson says.

“Also, it could lead to an oversupply of housing in some pockets of the country, which could impact property prices,” Hutchison notes.

Michelle Hutchison[/caption]

Two kinds of market pressure

Offshore developers generally focus on new residential apartment markets, but there are concerns this may lead to an increase of supply over demand and put downward pressure on prices.

Analysis of the housing market and population growth conducted by shows that 72 per cent more new properties are expected to hit the market this year than are required.

And even though foreign investors are prohibited from buying established properties, as apartment developments multiply, the price of established properties continues to rise in Australia.

A similar phenomenon was experienced in Canada after it deregulated foreign investment.

The average price of new and existing detached houses sold within the city of Vancouver topped $1.9-million last year an increase of 173 per cent since 2005.

To collaborate or operate alone?

Some developers, such as Melbourne-based property developer Steller, prefer to distinguish their product from that of overseas developers.

“The way Steller operates is at great odds with the way offshore developers operate in the Australian market,” says Steller managing director Nicholas Smedley.

“Our product knowledge and understanding of the Australian market mean that the end product we deliver is significantly different to that of an offshore developer.”

“While their presence may be large, in the suburban development game Australian operations always lure investors as we understand the cultural nuances, requirements and selling points for the local owner-occupier.”

Other businesses in the sector, developers and architects, simply embrace the increased opportunities provided by foreign investment.

Director at Baker Kavanagh Architects (BKA), John Baker says, “I believe offshore development in Australia definitely supports rather than threatens Australian businesses – they bring business to our door!”

“Of course, this needs to be supported with controls being implemented such as giving priority to Australian jobs and employing Australian workers, not workers from overseas.”

“Taking pride in our multicultural country, I believe Australians should embrace this inevitable phenomenon rather than build misconceptions and barriers.”

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