In its 2017 winter edition National Outlook report, the HIA noted that foreign investors inject “up to $70 billion” into Australian real estate annually.
It therefore argued that “punitive measures” — which it identified as changing visa rules, tightened restrictions on foreign investment from state and federal governments, Chinese government restrictions on foreign investment as well as clampdowns on lending investors and interest-only borrowers — could form a potentially negative confluence of factors for the Australian housing sector.
“Foreign capital is highly mobile and if it is forced from the market rapidly, it could accelerate the downturn in the sector unnecessarily,” said Tim Reardon, principal economist at HIA.
“There is a risk — if uncoordinated and poorly considered policies are introduced to curb foreign investment — that the decline in activity in the sector will be accelerated.”
Mr Reardon also highlighted the “significant impact” that the restrictions imposed by the Chinese government on outgoing foreign property investment could have on Australian home building.
He noted that from 2012, foreign investment grew by more than 400 per cent within four years, while investment from China now accounts for 50 per cent of total foreign investment in the property market.
“[Foreign] investors have contributed to activity and employment in metropolitan areas, building the supply of new housing stock and easing pressure on rental markets,” the economist said.
“The housing sector has already stepped back from its role [in] driving the Australian economy and now is not the time for governments to hit the industry with punitive charges.”
Mr Reardon concluded: “Governments of all jurisdictions should proceed with caution when imposing new punitive measures on this segment of the market.”
Downturn of 25.4 per cent could occur
HIA forecasted that there could be a modest decline in building activity as the trend cycle changes, albeit from record highs, while activity would “bottom out” in 2019 with activity “still at solid levels”.
The association predicted that a downturn of 25.4 per cent in new dwelling starts could occur between 2016 and 2019 with a peak number of new dwelling starts of 234,038 and a trough of 174,630 in 2019.
“The downturn that’s underway is also likely to be unique in a number of other ways,” said HIA senior economist Shane Garrett.
“Its forecast trough of 174,630 starts during the 2019 calendar year would easily be the higher ever bottoming-out point for a housing cycle. In fact, the likely low point would be higher than the peaks of several previous housing cycles,” Mr Garrett continued.
He also noted that the current downturn has for a starting point “the highest peak on record”, concluding: “The indications are that the contraction ahead will be relatively benign, involving an orderly and fairly smooth reduction in new home building starts, with the eventual trough still representing an elevated level of activity by historic standards.”
[Related: Supply-demand mismatch ‘remains acute’]