Question

. Some countries restrict foreign ownership in selected industries such as banking, media and telecommunications.

a. If Australia introduced fresh restrictions on foreign ownership in the real estate sector how would this affect Australian real estate companies? Australian homeowners? Renters?

b. If Australia removed previously existing restrictions on foreign ownership in the banking sector, how would this event affect Australian-owned banks? Bank customers? Shareholders of Australian banks?

Answer 1

a. If Australia introduced fresh restrictions on foreign ownership in the real estate sector:

Australian Real estate companies:This would be positive for the domestic Australian companies as global companies will be required to sell their existing stakes and exit the Australian market. Hence it will reduce competition from foreign player and will increase pricing power as well as sales volume for domestic companies. Their profitability will improve.

Australian homeowners: This would be negative for the prospective homeowners who are looking to purchase the new house as reduction in competition will lead to increase in the pricing of new house. They might also loose the getting good quality home with maximum facilities which might have been because of foreign player with better technology and lot of value for money homes due to increased competition. Existing homeowners might see increase in prices of their homes due to decrease in supply and increased prices by existing domestic players.

Renter: As prices of house might increase due to this, Homeowner will raise the rent / lease charges. Hence renter will have to higher rent or lease amount.

b. If Australia removed previously existing restrictions on foreign ownership in the banking sector,:

Australian own bank: Competition will increase, will impact the profitability of Australian owned bank.

Bank customers: Customer will get better service and new products due to entry of foreign players. Also customers might get loans at relatively lower cost as new foreign bank and domestic banks will fight for the acquisition of new customers

Shareholders of Australian banks: As the sales and profitability of domestic banks get hampered due to entry of foreign players, domestic bank equity prices might decline due to this. Shareholders of domestic banks might see erosion in value of their equity holdings.