Foreign developers, many from mainland China and Southeast Asia, are behind many of the ambitious new building projects in Melbourne, according to new analysis by Charter Keck Cramer, a Melbourne-based property advisory firm.
"It's no coincidence we are seeing peak levels of development activity across … Melbourne coincide with a rising participation of foreign developers and purchasers," said Robert Papaleo, national executive director at Charter Keck Cramer.
Melbourne's changing skyline
Melbourne's skyline is gradually being transformed by overseas-funded developments. Among the foreign-funded towers under construction include Australia 108, a giant residential building being built in the Southbank by a Singaporean developer, and Aurora, which Malaysian interests are putting up in the central business district.
While the rise in development activity is a welcome boost to the local construction industry and is filling the Andrews government's coffers to bursting point, it is also exacerbating Melbourne's housing affordability crisis.
Foreign investors are snapping up as much as 40% of all new apartments in Melbourne, according to Charter Keck Cramer.
The extent to which international housing development is contributing to the current housing affordability crisis is debateable, as inadequate data makes any solid conclusions hard to draw. However, the figures do coincide with census figures that indicate home ownership is falling to levels not seen since the 1950s.
The rise of 'Hedge Cities'
The east coast capitals have become what's known among some economists and geographers as "hedge cities," which are places where very wealthy foreign investors (mostly Chinese in Australia, but Americans, Russians, and other nationalities in other markets) park their excess wealth.
"Globally, we see that housing is now being seen as an asset class attractive to increasingly mobile capital," Papaleo said. "Australia has been, in some respects, the path of least resistance to international capital seeking to invest in real estate."
The surge in foreign investment has also become a significant money-spinner for the state government. According to official data released to The Age under freedom of information legislation, a tax on foreign buyers of residential property, introduced in mid-2015, has generated more than $133m for the Andrews government.
Curiously, the foreign tax is not specifically itemised in state budget papers, and many property industry insiders and analysts believe this is because of the political sensitivity around foreign ownership and Victoria's declining housing affordability.