What does the return of overseas investors mean for the local market?

Overseas investment in Australian residential property dropped by 23 per cent in the first seven months of this year compared to the same period in 2021, creating more breathing space for local investors.

With signs indicating offshore demand may pick up again as soon as all borders reopen internationally, it looks as though there’s currently less competition for the more prestigious properties in Melbourne and Sydney.

“We did see an unusually elevated demand from overseas investors last year when we look at overseas searches for Australian property,” says Domain chief of research and economics Dr Nicola Powell. “As soon as the US and UK were out of restrictions, we saw a jump in the numbers of inquiries from foreign buyers, overseas students and expats.

“Back then, we had so many reports of buyers buying sight unseen and people looking to purchase as they were nervous the market was running away from them in terms of price growth. But now we’re seeing that demand drop back and correcting itself.”

From January to July 2021, for instance, Domain data shows overseas searches rose 22 per cent in 2020. Since then, another factor in their levelling off could also be the doubling of foreign investment fees from July 29. The highest volumes of searches this year have so far come from the US, New Zealand, Hong Kong, China and Singapore, followed by Canada, Indonesia, Vietnam and India. The UK comes in at number 20.

“Those numbers are often indicative of the size of the country,” Powell says. “And the order doesn’t bounce around much.”

The top target suburbs for overseas searches are also fairly constant, being topped by the Melbourne region, then Sydney’s Middle Harbour, Sydney city, Mosman, Chatswood and North Sydney. Melbourne’s South Yarra comes in at number 10.

Many of those areas already have significant overseas populations, so others from those countries feel confident about investing there, and they’re also home to a fair share of more expensive, prestigious properties.

Gowan Stubbings of Kay & Burton South Yarra says they are seeing a pick-up in inquiries from mainland China since there’s already an established Chinese community in the city.

“When their border reopens, I think we’ll see quite a lot of activity from mainland China and Hong Kong,” he says. “They often already know people here, and they’re interested in education and, with Melbourne winning the title of the world’s most liveable city seven times in a row [in 2017 by the Economist Intelligence Unit], that really put it on the global map.”

In Sydney’s Middle Harbour, Atlas Lower North Shore agent Adrian Bridges is also seeing an increase in inquiries.

“For the last couple of weeks now, we’re seeing people flying in to look at homes they want to buy,” he says. “With rents so high, they’re looking at rental returns and then planning to move in one or two years later.

“We’re particularly seeing the Chinese market come back to life.”