How Overseas Buyers Could Be Helping Sydney’s East

Statistics show overseas buyers are back.

We explore what it means for Sydney’s eastern suburbs property market…

Overseas buyers are active in Sydney’s property market right now. NAB’s latest data reveals as much as 15% of all new property sold statewide is purchased by foreign citizens.

But while overseas buyers attract attention for the wrong reasons – i.e. pushing up housing prices – they also do bring some benefits.

We explore how overseas buyers impact our local property market.

Who are our overseas buyers?

First, it pays to remember that not all overseas buyers are foreigners. Instead, overseas buyers in the eastern suburbs property buyers break down into two main categories:

• Expat Australians. These buyers tend to be looking to buy something ‘back home’ while still living overseas. Expats were exceptionally active during the pandemic, with many choosing to purchase a place here, even if they didn’t intend to move into it for some time. These buyers often work in financial centres such as New York, London, Hong Kong and Singapore.
• Foreign nationals. The second group is foreign nationals looking to buy Australian property. These buyers tended to stay away during the pandemic, with NAB data revealing that in 2020, they made up just 2-3% of new property buyers in NSW. Those numbers shot up rapidly at the end of 2022, and have been high ever since.

Why are foreign buyers so active right now?

You’d have to go almost exactly a decade – to late 2014 – to find a time when foreign buyers have been so active in the NSW property market. Back then, the growing number of foreign buyers in the market led to the tightening of rules and increased penalties for non-compliance, as well as an ATO crackdown.

Today, however, we’re seeing renewed interest in the Sydney property market, due to several factors. These include:

• A surge in migration. During the pandemic, few migrants came to Australia (most of our population increase was down to returning citizens). However, ABS data reveals FY2023 (the latest year on which data is available) saw our largest ever migration intake with 737,000 new arrivals to Australia. Sydney took more migrants than anywhere in Australia, with more than 156,000 choosing to live here.
• Growing global uncertainty. So much is happening in the world today, including high inflation, the fear of recession, the Russian invasion of Ukraine and tensions in the Middle East. Australian property is often seen as a ‘safe haven’ in times like these, encouraging people to buy now. Similarly, Sydney’s relaxed lifestyle and stable politics and institutions are appealing to many.
• Developments in other countries. More than half of Australia’s overseas buyers are based in China, where there is a well-documented oversupply of property. So many Chinese are looking to invest their money in property elsewhere. The end of COVID lockdowns and the increased freedom to travel have once again encouraged Chinese property buyers to look to Australia (which ranks as the number one destination for property investment from China).

What property can overseas buyers purchase?

Australia has relatively strong restrictions on foreign buyers, who are generally limited to buying ‘new’ property. This can include newly built houses, apartments, and townhouses. These properties are often bought off the plan or are newly constructed. They can also generally buy vacant land, so long as they begin construction within a specified time (usually four years).

Foreign buyers can only purchase established property in certain limited circumstances. One exemption is temporary residents who plan to use the property as their primary residence. However, they must generally sell the property when they leave Australia.

Unless they’re Australian citizens or residents, overseas buyers generally need to get clearance from the foreign investment review board (FIRB) when they buy.

The benefits of foreign investment in Sydney’s eastern suburbs

While a lot has been made about the impact overseas buyers can have on housing affordability, the reality is more nuanced.

One thing Sydney lacks right now is enough large scale development and overseas buyers have a vital role to play here. Because they’re generally limited to buying new properties, overseas buyers tend to be over-represented in the buyers of new builds. While on one hand some argue that this detracts from the number available to local buyers, the reality is that it also contributes to getting projects off the ground in the first place. After all, developers know they will be more likely to sell a certain number of apartments before a build takes place. Often, the economic factors influencing foreign buyers will also be different from the domestic market too, given some added insurance to a major project.

This can be especially important in projects that contain affordable or social housing, especially if that affordable housing can impact the developer’s overall profitability.

Overseas buyers are also good for the NSW government’s coffers. That’s because they pay a higher rate of transfer duty than local buyers – 8% of the dutiable value. That means a $2 million property attracts transfer duty of $160,000 for a non-resident or citizen compared to $92,409 for a local buyer.

What property are overseas buyers looking for in Sydney’s eastern suburbs

Obviously, most overseas buyers are first and foremost looking for newbuilds, and most newbuilds are apartments.

That often places overseas buyers in direct competition with downsizers, investors and even first home buyers, given these three groups are over-represented in Sydney’s apartment market.

That said, not all new builds are apartments, and whenever a newly built house comes to market that meets the foreign buyers requirements, it will inevitably attract substantial interest from overseas buyers.

Want more?

If you’re thinking about buying or selling property in the Eastern Suburbs, don’t hesitate to get in touch with our team today.