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The number of foreign investment applications for residential housing has fallen sharply.

The government, and regulators, have recently deployed a series of measures aimed at cooling Australia’s booming property market. And authorities in China have been cracking down on the amount of money flowing out of the country.

In a major pre-budget speech today, treasurer Scott Morrison revealed that the number of foreign investment applications for residential housing has fallen to an expected 15,000 this year from 40,000 last year.

According to research by Credit Suisse, foreigners had been buying property at an annualised rate of $8 billion, equating to 25% of new supply in New South Wales and 16% in Victoria in the past 12 months.

“We are already seeing signs the heat in our housing markets may be coming off, especially in the apartment market,” says Morrison.

“Cooling foreign investor interest, due to tougher foreign investment rules implemented by our government and capital outflow restrictions in China, are already having an impact.”

Morrison says it’s imperative a scalpel rather a chainsaw is used when it comes to dealing with pressures in the housing market.

“The government’s approach uses carefully calibrated measures and does not run the risk of causing a broader housing shock that would undermine economic confidence, negatively impact household consumption and hinder economic growth,” he says.

China’s central bank late last year started vetting capital transfers abroad worth $US5 million or more. Previously, only transfers worth $US50 million were required to be reported to authorities.

Those restrictions were tightened further at the beginning of this year with regulators stipulating that people could not purchase foreign exchange for overseas investment, including for buying houses.

And in Australia, the government has been forcing sales of established properties bought by foreigners in breach of investment rules.

Other moves to take the heat out of the property market include limiting interest-only mortgage lending and lending generally for property investments.

The big banks last month increased interest rates for investment properties. And three of the big four increased rates for owner-occupiers.

Housing affordability is now a significant political issue, with several measures expected in the May federal budget to help first home buyers.

Reserve Bank of Australia governor Philip Lowe says reducing demand-supply imbalances in Australia’s housing market are the only solution when it comes to improving housing affordability.

Sydney house prices have increased by 20% over the last 12 months and are up by more than 100% since the GFC in 2009.

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