Foreign investment in Australian property has recently become the subject of much interest in the media, particularly over the last two years. Foreign investment in property has up until recently been low key. The booming property market in the late 1980's and the movement of Japanese investors offshore saw a large injection of foreign capital into the market. It was as a result of the acceleration of foreign investment in our property that the Federal Government saw fit to install a control mechanism on the amount and type of investment.
There are three factors to the foreign investment debate that are key to establishing a framework for discussion about the issue. These are regulations on foreign investment, the benefits of foreign investment and the existing levels and trends in foreign investment.
It is difficult to measure the benefits of foreign investment in property and indeed little empirical analysis has been undertaken to measure the effects. Clearly, though, the benefits (and negative effects) of foreign investment are very similar in type and extent to those benefits that a local investment of the same size would bring. Whether foreign investment should be encouraged segments into two distinct questions:
1. Is more investment, and not just foreign investment, good for this country?
2. What are the intangible effects that involvell1ent in and ownership of Australian property has on the morale/harmony of our countrymen?
The first question is one of all economic nature. There have been no conclusive results drawn from the analysis of the effects of foreign investment on employment, balance of payments, resources and society in general. It depends, to all extent, upon the state of the local economy. An economy with full employment and high inflation will be adversely effected by foreign capital injection.
The second question is difficult to answer. There is a feeling in parts of the community that ownership of our property by foreign companies will either lead to us being taken over or to us living amongst a foreign enclave. Although these fears are unlikely to be realised, these concerns are real and the Government has a responsibility to answer the concerns, whether it be to only dismiss them.
The general public, relative to their feelings on other issues, have strong opinions on the subject. This is evidenced in numerous surveys on the issue.
The Federal Government is the sole regulatory power with regard to foreign investment. Generally, acquisitions and developments by foreign groups are allowed where they are not contrary to the national interest. The Government has sought to encourage few property developments by foreign companies and to restrict their involvement in existing commercial properties to a 50% equity stake.
The policy guidelines have been loosely interpreted by the Government's administrative body, the Foreign Investment Review Board. Foreign investors have been left somewhat confused about the requirements they need to satisfy and this is believed by many to be deterring further investment.
Coupled with this is an energetic new Queensland Government, who has sought on a number of occasions to intervene in the FIRE's process. This has introduced another party into the foreign investors approval process and has no doubt added to the uncertainty of their proposed investment.
The Federal Government is empowered under the Foreign Acquisitions and Takeovers Act 1975 to not allow an acquisition or development to proceed or to order the divestment of a property that it sees to be contrary to the national interest.
The levels of foreign investment in property has grown markedly over the past few years to a point where property investments are twice the value of investments in the manufacturing sector. The manufacturing and milling sectors have significant foreign investment, with almost 50% of the industries being foreign controlled.
Investment from the United Sates and the United Kingdom is the highest of all foreign countries. Japanese investment is third highest and is trending towards overtaking the United States and the United Kingdom in a few years, largely as a result of Japanese companies' involvement in Australian property.
Almost one quarter of Japan's offshore property investments are in Australia. It is clearly focused in CBD commercial property ill Sydney and in tourism and residential unit type developments on the Queensland Gold Coast.
The recent and sudden entry of Japanese investors into these markets has been the major reason for the public and government debate in the issue. The lull in the property market has decreased the amount of debate, to an extent. This may be the tonic that was needed for the debate to become more sensible and less emotive.