Since the 2008-2009 global financial crisis, city home prices around the world have risen sharply with low interest rates, high liquidity and more foreign investors, leading many governments to introduce property cooling measures.

Singapore, Hong Kong, London, Melbourne, Sydney, and Vancouver have reviewed taxes to tame foreign purchase of residential properties and moderate housing prices, with foreign non-residents making up 2-12% of overall transactions:

• Sydney: Foreign buyers can only purchase new-built housing. Foreign purchases in Sydney are the highest at about 15-25% of new residential sales in 2016.
• London: It is estimated that foreign buyers make up less than 20% of new-build market transactions and about 13% of new-build units sold to overseas buyers in 2014-16.
• Singapore: Foreign buyers make up 6-7% of sales volume in the private residential market, which is 25% of total residential stock and 30% of yearly residential transactions.
• Hong Kong: Foreign buyers make up 4-5% of total residential transactions.

JLL identifies four driving factors for foreign purchasing residential properties in global cities:

1 - Occupation:

Expats surged to 244 million, 3.3% of the world’s population, up from 173 million in 2000.

2 - Education: 

UK: 19.2% attending public universities and higher education in 2015-16 were international students.

Singapore: 30% of students at National University of Singapore and Nanyang Technological Technology in 2017 were international students.

Ownership eliminates house hunting every school term and reduces rising living costs.

3 - Buy to let:

Singapore and Hong Kong: Net rental yields spread positively over mortgage rates. 

Sydney and Melbourne: Yields are lower than mortgage rates.

Shanghai and Beijing: On-resident foreigners are not allowed to purchase residential property.

UK: Average two-year fixed mortgage rate dropped to less than 2.0% since 2015 while the NOI of residential properties in London remained flat at around 2.0% in the past five years.

4 - Wealth preservation and diversification

City residential properties have potential for long-term capital appreciation, and are popular for investors to preserve wealth and diversify their investment portfolio.

Prime residential properties in London, New York and Hong Kong increased 20%, 60% and 66%, respectively, on average between 4Q07 and 4Q16. Singapore prime residential prices, declined about 1% due to a series of cooling measures implemented between 2010 and 2013, after a surged of 60-70% from the global financial crisis trough in 2009.

Singapore: In 2016, one housing unit was built for every 1.5 additional person.

London and Hong Kong: Face a shortage with 5.4 and 4.5 extra persons, respectively, per new dwelling unit.

Shanghai and Beijing: Ratios low in 2016 due to population cap at 25 and 23 million, respectively, by 2020.

Targeted Taxes
Some governments are taming foreign purchases of property by placing higher buyer and seller stamp duties.

Hong Kong: Foreigners buying a second property now pay a 30% stamp duty on the purchase price.

Australia: New tax for properties vacant for six months plus, and capital gains tax withholding threshold for foreign tax residents reduced from AUD2m to AUD0.75m and withholding rate raised from 10% to 12.5%.

Home-sharing platforms

Airbnb, HomeAway and similar are set to expand further. Governments that regulate home-sharing platforms could help to harness more housing stock for occupation. They now account for around 25% of hotel room nights in global gateway cities in US and Europe. But top cities in Asia, listings making up only 6% of total available room nights. It is estimated that Airbnb’s average occupancy rate in the top four markets at 25-30%, compared to average hotel occupancy rate at 80%. Home-sharing accommodations may make up 9-11% of total occupied room nights in these cities, creating pressure on hotel room rates as hotels experience fewer compression nights.

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