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The 2017 budget’s 50 per cent foreign ownership restriction curtails supply to an already full rental market and removes the competitive advantage overseas developers have over local developers, an expert says.
Prior to this change, overseas developers had a competitive advantage as they had no overseas sales limits, Advisory firm Point Polaris director Andrew Hogan says.
"Overseas developers using overseas banks could, if they so desired, have 100 per cent foreign sales, with 100 per cent en masse sales occurring overseas,” Mr Hogan said.
“What [Treasurer] Scott Morrison has done is even the playing field between local and overseas developers, with overseas developers now forced to generally work within the same FIRB [Foreign Investment Review Board] sales metrics as local developers.”
Mr Hogan said banks require local developers to pre-sell approximately 70 per cent of units in a development, and impose a 25 per cent FIRB restriction on these presales.
“This means local developers require 52 per cent local sales prior to construction commencing,” he said.
“Once the developer has achieved financial close with a local bank, they are free to sell the rest overseas, meaning, under a 25 per cent FIRB presales limit, local developers using local banks can develop buildings with circa 48 per cent foreign ownership.”
Mr Hogan said banks are always looking at the FIRB presales limit.
“And whilst many current developments are at 25 per cent, there is a more recent bank trend to constrict this further, more in the realm of 15 per cent. If this is the case, then locally banked projects can end up with 40 per cent foreign ownership.”
Mr Hogan said overseas buyers have largely been reliable when it comes time to settle.
“Many pundits were nervous about large buildings settling this year, yet what we are seeing is that very few overseas purchasers are falling through when it comes to quality developments, even against the APRA headwinds of overseas purchaser mortgage finance,” he said.
“With the 50 per cent FIRB restriction placed across the whole market, coupled with APRA’s new powers across non-bank lenders, it means that the metrics by which local and overseas developers, local and overseas banks, and local and overseas non-bank lenders are becoming converged.”
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