Who really owns Australia?

foreign-investment-australia

Despite many politicians and organisations misrepresenting facts on purpose to stir emotional reaction  and driving their own political agenda, the vast majority of Australia is owned by Australia.

That’s not to say that Australia does not have significant foreign investment. We do, and so does every other major economy in the world.

Australia is one of the most attractive developed nations for foreign investment.

Among the chief reasons for confidence in Australian assets include political stability, the transparency of our legal system and strong economic growth over the last 25 years.

You can say that Australia has it all. An abundance of resources, vast agricultural lands, natural wonders, cutting edge research institutions and a general population that is hungry for consumer goods.

Australia has a long history of foreign investment but as of late there have been concerns raised by the public as to how much of Australia do foreign parties own, who are these foreign parties and what does it mean for Australians?

The key concern is mostly aimed at China and how much investment it is poring into purchasing Australian assets.

stop china

At the end of 2015 foreign investment in Australia totalled $3 trillion dollars with the United States and the UK owning a staggering 45% of this massive figure.

China is ranked fifth (after combining Hong Kong and main land China) at 5.3%.

foreign investor nations

Historically speaking the UK and America have always been the strongest investors within Australia trailed closely by Japan.

This is illustrated in the below graph of foreign share in Australian of the three nations vs. the rest.

historic foreign investment

So why is it then, that there is a general misconception that China owns Australia when Chinese investment is no where near that of the US and UK?

There are two driving reasons.

The first being that in the 2014 and 2015, China became the largest investor specific to those years,  outpacing America for the first since the 1980’s (when Japan did the same).

total investment 2015

The second reason is that the bulk of recent Chinese investment is concentrated in the property sector.

The property sectors is where ordinary Australians are more exposed to a contested sale process over the usual assets sold to foreign parties. This leads to a skewed perception of the overall national investment picture as the issues of housing affordability are something the average citizen can relate to.

It is important to note that despite pumping in the largest amount of money in the property sector by any single country, property investment from foreign entities in 2014 and 2015 totalled $171.49 billion of which China had a 21.4% share. A majority of properties were purchased by other nations.

In 2014 China invested $12.4 billion specifically into property. Of this, $6.6 billion was in commercial real estate and $5.7 billion in residential, as illustrated below.

Total foreign investment that year in property equalled $74.59 billion.

releaste investment china 2014

In 2015, China spent $24.3 billion in all property where total foreign investment in real estate that year equalled $96.9 Billion.

2015 foreign investment in property

While this gives us a breakdown of the amounts of  foreign money pouring into the property market, how much is this in overall contribution to the total residential property sales across Australia?

In 2014 there was $258.1 billion of residential transactions. This means China only purchased 2.2% of all residential property in that year.

2.2 percent 2014

So while China outpaced other nations in 2014 and 2015, it’s overall contribution and ownership in the Australian residential property market is overstated.

China is largely blamed for the rising cost of housing, particularly in Melbourne and Sydney. No other foreign nation receives the same public reaction. According to most media it’s almost like no other purchasers exist. Whilst China is the largest recent investor in this sector its buying power is still eclipsed by foreign investment pouring into the Australian property market from other countries.

This is not to say that foreign investment in the residential market does not have an impact on housing price, the impact is exaggerated. Curbing the amount of foreign investment going into residential specific assets will help ease some of the affordability crisis in Australia but rising prices are mostly driven by other factors.

The Australian housing market is worth $6.4 trillion.

Source: http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6416.0Main+Features1Dec%202016?OpenDocument

So where do foreign investments stand in regards to other major sectors?

Similar concerns with Chinese investment are echoed in the agricultural industry, where perception is that China is buying all of our farm land.

china owns australia

It is true that China has outpaced other nations in the last year in most sectors including agriculture, but how much does China really own?

2015 foreign investment by sector

The overall picture is in stark contrast to recent purchasing trends.

Only 13.6% of Australian agricultural land is foreign owned. China owns just 0.4% of our farmland.

So while they may be spending more money in recent times their ownership pales in comparison to the UK, who owns 7.2% of all Australian agricultural lands.

The United states is second with 2%, followed by the Netherlands with 0.8% and Singapore with 0.5%. China is ranked 5th.

farm land

This is in night and day compared some media reports and public hysteria that Australia is for sale and China is the buyer. These are deliberate attempts to sir controversy within the Australian public.

Source: http://www.abc.net.au/news/2016-09-06/uk-owns-biggest-proportion-of-foreign-owned-farmland/782085

Overall, despite $3 trillion of foreign investment in Australia, most assets are Australian owned.

The only two sectors that have significant foreign ownership over Australian investment are the mining and manufacturing industries.

Whilst its hard to collate exact statistics for each and every business operating in Australia, using the top 2000 companies gives us a good snapshot of foreign ownership in Australian businesses. The top 2000 companies in Australia represent 65% of all company revenue.

Source: https://dfat.gov.au/about-us/publications/documents/international-investment-australia.pdf

total percentage of sectors owned by foreign companies

Australia owns, or has a majority stake in 62.8% of the largest companies operating within our borders and more importantly those companies own 87.7% of all business assets and generate 90.4% of net profits.

So why do publications purposefully try and mislead the public in this regard?

Has there been a higher rate of foreign investment in Australia in recent year driving these public fears?

According to the IMF, there has not been any significant trending changes to the percentage of foreign investment to GDP in the last three decades.

foreing investment as percentage of GDP history

Foreign investment in Australia in general is positive. The right foreign investment creates job opportunity and stimulates the economy.

Its understandable that foreign investment in some sectors like residential property and key utilities can have negative consequences to Australians. This is where sensible regulation of how much foreign investment can come into play makes sense.

In areas where Australian businesses do not have expertise or market presence on the global level, it is a welcome boost to the local economies. For example, when Japanese and US car manufacturers operated in Australia, local communities benefited with additional job opportunities as well as local traders saw more business created.

foreign-investment-australia

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