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RBA Says Foriegn Investments Have Little Effect on Property Prices

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The Reserve Bank of Australia (RBA) published findings that show the effect of foreign investments in the Australian housing market is less than it's portrayed to be.

The report was published in the central bank's monthly bulletin on Thursday and is based mostly on approvals made by the Foreign Investment Board (FIRB).

Figures provided by the FIRB change drastically on a yearly basis; however, they remain a good measure of foreign investments made in real estate. For 2012/13, numbers showed that foreign investment in residential properties climbed from an average of $6 billion per year in the 1990s to over $17 billion over the last year.

Rises in real estate prices and market turnover increases have forced fluctuations in foreign residential approvals between five and 10 percent of the total market over the past 20 years.

So, while the investment amount looks large for 2012/13, it is still in the middle of range.

FIRB numbers provide limited information, according to the RBA report authors, Maurice Gauder, Claire Houssard and David Orsmond, who work in the economic analysis department.

The numbers are somewhat faulty as not all approvals lead to sales. Some developers are awarded blanket approvals, only to exercise a portion of them, while other developers simply fail to win on placed bids.

FIRB figures also fail to account for sales in which local residents purchase from foreign owners.

Another oversight, not mentioned in the RBA report, is the number of local buyers who purchase property on behalf of foreign investors, acting as proxies.

Putting aside the issues with data collection, researchers from the RBA have found overall that foreign investors have made a “relatively steady and fairly low” proportion of the overall market over the years.

They add that foreign investment has had little to do with recent rise in prices.

In a nutshell, they have had little effect in preventing first-time home buyers from finding and securing a home.

“The data and liaison suggest that foreign residential investment is concentrated in some parts of the housing market, though not generally in the parts where first home buyers have a major presence,” Gauder, Houssard and Orsmond said.

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