The state where offshore buyers are flocking

Overseas searches to buy on realestate.com.au were at the highest level seen in five years in 2023, signalling growing interest in Australia’s property market.

Across Australia, there were 17% more offshore searches to buy residential real estate in 2023 compared to the 12 months prior, with offshore rent searches up 18% over the same period.

But notably, where overseas property seekers are looking to rent is not necessarily where they are looking to buy.

In the 2022 financial year, Victoria had almost double the number of foreign transactions compared to the next highest state. Picture: Getty

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When it comes to offshore rental searches on realestate.com.au, New South Wales dominates, accounting for 33% of all searches over the 12 months ending February. In contrast, New South Wales ranked third for buy searches, behind both Victoria and Queensland.

Search trends are being reflected in transaction volumes. According to the register of foreign ownership of residential real estate, Victoria saw 1,703 purchases over the 2022 financial year. This was nearly double the next highest state – Queensland – which saw 956 purchases, and well ahead of New South Wales, at 664.

Affordability is likely a key factor behind the lower level of transactions seen in New South Wales, with the majority of the state’s offshore residential sales occurring at the sub-$1 million level, below the median price of a home in Greater Sydney.

Offshore buyers are more likely to invest in capital cities, and Sydney – with a median property price $256,000 above Melbourne and Brisbane – is out of reach for many offshore buyers.

In New South Wales, 51% of foreign purchases were at the $1 million-plus level, compared to 27% in Victoria, and 18% in Queensland. Across the remaining states and territories, $1 million-plus purchases accounted for 10% or less of all sales.

When it comes to the suburbs and regions offshore investors are looking to buy, the most searched location was the Melbourne CBD, followed by the Gold Coast and Greater Brisbane. The Greater Sydney region followed in fourth with inner Perth capping off the top five.

The Gold Coast is among the most-searched regions offshore investors are looking to buy. Picture: Getty

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There are several drivers drawing buyers to Melbourne. While Melbourne saw its population shrink more dramatically than any other Australian city over the 2020-21 pandemic years, it had been the fastest growing city over the decade pre-COVID.

Now, on the other side of the pandemic, those attributes that drove population growth and investor demand into Melbourne are reemerging. Melbourne was ranked Australia’s most livable city in 2023 and boasts the most diverse economy in the country.

Victoria has regained its title as the fastest growing state, expanding by 181,846 people over the 2023 financial year, a title it is expected to retain over the coming years.

While the fundamentals of Australia’s property market make it an attractive investment destination, there are challenges and considerations for offshore buyers.

The first is the types of property that can be purchased. Offshore buyers are only permitted to buy newly built homes except where an exemption is granted. Exemptions can be granted in instances where an offshore buyer is looking to temporarily relocate to Australia, however the property must be sold if and when they leave.

Another consideration for offshore buyers is the additional costs. Offshore buyers pay higher stamp duty as well as a higher rate of land tax – a rate that has been doubled from 2% to 4% in Victoria and New South Wales in recent years.

Offshore buyers are only permitted to buy newly built homes except where an exemption is granted. Picture: Getty

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In addition, since December last year, Foreign Investment Review Board (FIRB) application fees were tripled for established housing. This change was designed to direct offshore capital away from established housing and increase demand and promote development of new housing in Australia. Additionally, vacancy fees on foreign-owned homes purchased after 9 May 2017 were doubled in December, to disincentive offshore owners from keeping properties vacant.

Despite these challenges, demand from offshore investors for Australian real estate is likely to prove resilient.

Australia’s economy has a strong history of resilience, remaining out of recession for nearly 30 years prior to the pandemic. Australia also ranks highly on political stability and transparency in doing business. What’s more, strong population growth is likely to support the performance of Australian property prices over the coming years, providing a key drawcard to offshore investors.