Foreign investors are more wary about snapping up Australian assets, but officials tip a recovery.
The Foreign Investment Review Board annual report tabled in parliament on Tuesday showed the value of approved proposed investment fell to $195.5 billion in 2019/20 from $241 billion a year earlier.
The volume of deals also fell.
A recovery is predicted for 2020/21, with Australia continuing to remain an attractive destination for foreign investment.
Fewer foreign buyers chasing Australian residential real estate contributed to a drop in the number of investors, but not a drop in value as prices accelerate.
Some 7056 residential real estate applications valued at $17.1 billion were approved in 2019/20, down 455 on a year earlier, but up $2.3 billion in value.
The tax office completed 620 residential real estate investigations, identifying 259 properties that were in breach -- less than half the number of breaches in 2018/19 as new rules bite.
Board chair David Irvine said significant changes had protected Australia's interests during a year of global economic upheaval due to the COVID-19 pandemic.
"The board worked with applicants and business to navigate the impacts of the shock to Australia's foreign investment system," he said.
"Steps were taken by governments around the world to enhance screening frameworks in response to the COVID-19 pandemic."
Policymakers recognised foreign capital would support distressed businesses and economic recovery but were wary many normally viable businesses could pass into foreign hands.
The threshold for scrutiny of foreign investment dropped to $0 to give the government full oversight of all transactions and potential predators at a time of crisis.
While approved proposed investment deals from China fell by almost 600 in 2019/20, the value remained relatively steady at $12.75 billion.
China was the sixth largest by value, behind the United States, Japan, Singapore, Canada and the United Kingdom.
New foreign investment measures took effect from January 1 this year to stop purchases on national security grounds.
Australian Associated Press