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Cashed-up Chinese are pricing the young out of the property market

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Opening the door to overseas property investment

Reserve Bank governor Glenn Stevens says overseas investment in the residential property market is a parliamentary matter to manage.

PT0M0S 620 349

We need the Chinese. But the growth of the Chinese middle class has been so explosive, and on such a scale, that it has the capacity to affect Australia in ways that will need to be controlled if some trends continue to accelerate. Notably home buying.

There has never been a lower percentage of first-home buyers in the Australian market. They have never had to pay and borrow more to enter the market. Especially in Sydney and Melbourne, where first-home buyers now represent a tiny segment of the market, where traditionally they had been about 20 per cent. This is not culturally healthy.

<i>Illustration: michaelmucci.com</i>

Illustration: michaelmucci.com

First-time buyers, young buyers, are now caught in a pincer movement between superannuation and Chinese investment.

On Friday, when the governor of the Reserve Bank, Glenn Stevens, briefed the parliamentary standing committee on economics, most of what he said was unremarkable until he said this: ''Over the past three months, approvals to build private dwellings numbered almost 50,000, an increase of about 27 per cent from a year earlier, the highest three-month total in the 30-year history of this [statistical] series.''

Yet he then described consumer demand as ''skittish'' and business investment, outside of mining, as ''very low indeed''. In the midst of this skittish, sluggish growth, there is an exuberant housing market. It is not just low interest rates.

A survey by HSBC Bank found that more than one-third of affluent Asians own overseas property, and Australia is their number one destination. Of the wealthy mainland Chinese surveyed, 9 per cent owned property in Australia; of those surveyed in Hong Kong, 10 per cent; from Singapore, 18 per cent; and Malaysia, 26 per cent.

Given the size and wealth of the Chinese diaspora, these indicate big numbers which could become much bigger if investors from China continue to kick in and the Australian dollar continues to decline in value.

Friday's South China Morning Post had a story which began: ''Chinese investment in Australian real estate has grown 60 per cent in the past two years with buyers and developers focusing largely on Sydney and inner-city Melbourne. Huge interest from cashed-up Chinese buyers has been a major driver.''

The story then recycled news published in Australia that Juwai.com, an online real estate broker which connects Chinese buyers with overseas properties, estimates there are 63 million Chinese who could afford to buy property overseas, the fastest-growing market was Australia, and the most popular price bracket is $550,000 to $750,000 for houses or apartments.

This is pretty much what first-time property purchasers look to buy. If cashed-up Chinese buyers, and superannuation funds looking for investments, are both driving the market, this becomes a cultural issue if Australia wants to maintain the tradition of having one of the world's highest rates of home ownership.

Vancouver is further down the same road. Vancouver ranks as the second-least affordable housing market, according to the 2014 Demographia International Housing Affordability Survey of 360 housing markets in nine Western countries.

Vancouver is, by far, the least affordable city in Canada for housing. The survey found Hong Kong the most expensive housing market, by far. Sydney and Melbourne rank fourth and sixth on the same list.

A common link in these markets is investment from China and the Chinese diaspora. The weight of investment in housing by the Chinese diaspora comes from multiple channels: direct investment from China and Hong Kong; investment from the Chinese middle class in Singapore and Malaysia; investment from the large Chinese community in Vancouver, and investment by Chinese immigrants who use New Zealand citizenship as the back door to Australian residency.

Hong Kong, acting to keep a lid on prices for its own citizens, has imposed a 15 per cent tax on outsiders, overwhelmingly from mainland China.

Canada has just abruptly shut down its visa scheme for wealthy foreigners, the Immigrant Investor Program, which for years was the express gateway to permanent residency. The scheme had a backlog of 65,000 applicants, most from China, and most of whom intended to live in Vancouver.

In Australia, there are no indications of any official concern at the effects of overseas buyers on prices in the Sydney and Melbourne markets. Stevens gave no indication on Friday that he thought restrictive measures were necessary. The official consensus is that the demand for property from Asia is tightly focused by suburb and in new housing developments, creating a growth in housing investment that might not otherwise exist.

While there is a recognition of the growing displacement effect caused by Australians buying investment properties for their superannuation portfolio, there is no such official concession of a displacement effect caused by blocks of units being built specifically for Asian investors, or suburban clusters favoured by Chinese buyers.

Not yet. Given the size of the Asian middle class, given its continued rapid growth, the indicators in Hong Kong and Vancouver are that curbs on foreign ownership will become an inevitable public debate if a critical mass of locals believe they are being priced out of home ownership in their own cities.

Twitter: @Paul_Sheehan_

291 comments

  • Expensive unffordable homes is another legacy of the Rudd/ Gillard labor govt.

    Gillard instituted a new scheme where foreigners can buy expensive homes and get their permanent residence visa. No wonder this visa scheme is very popular with Chinese buyers.

    Labor claims to be working class but its policies are shamelessly aimed at the rich to get more wealthy.

    Commenter
    Regh
    Date and time
    March 10, 2014, 12:04AM
    • Oh please! Labor? Try BOTH sides of parliament in Canberra, ‘Regh’. Leave your one-eyed political bias out of this serious issue. If the Libs wanted to do something about it, they could. After all, they’re the ones in power, right?

      What we are currently seeing (in both residential and more strategic assets like energy and minerals) is a complete sell-out of Australia. It is absolute lunacy.

      This is NOT xenophobia or racism; it just totally defies belief and business logic to flog off our most prized assets to a foreign interest. Try doing what we're doing in Japan, China, or Korea. It simply is NOT allowed. They are laughing hysterically behind our backs. Trust me – I’ve worked for extended periods in Asia. Their vision is generations ahead of the myopic Aussie who is merely worried about the football this weekend.

      So it is time our so called ‘leadership’ who is voted in by Australians to represent Australians, whose salaries are paid for by Australians. It's time they represent those same people.

      There are only three alternatives to this serious issue: 1) Foreign ownership needs to be knocked on the head now; 2) Slug every foreign-owned property with a huge 'foreign investment tax' (if these folk can afford to buy property overseas, they can afford to pay more to the host country), or; 3) Viva la revolution...!

      This needs to be addressed urgently before the young kids of today are entirely marginalised in their own country by others not of this land...

      Commenter
      John Citizen
      Location
      Lane Cove
      Date and time
      March 10, 2014, 5:33AM
    • Regh,
      People are tiring of the blAme Labour for everything argument. You could argue that 50000 new dwellings in the pipeline, the most in a long time, is excellent for the economy, a legacy of Labour. All it needs now is The Liberal state governments to tweek it so they pay their share of state taxes and make it unattractive for the Overseas Chinese investors to own multiple properties.Not that hard Regh instead of the myopic blame Labour argument

      Commenter
      Shane
      Date and time
      March 10, 2014, 5:51AM
    • John Citizen, yes the finger can be pointed at both sides of politics but if as Regh claims Labor implemented a scheme where foreigners can buy expensive homes and be granted permanent residence than that is something we certainly can blame Labor for.

      There will be pressure on the current government to restrict foreign ownership of property, particularly residential property for the reasons articulated by Paul Sheehan. If Hong Kong and Canada have already started restricting foreign ownership then it's about time we did too. And why on earth did Gillard approve of such a rort anyway if she was leading the so-called working class party? What a hypocrite she, Labor and the Unions are.

      Bill Shorten would do well to back reversal of Gillard's changes and go further to put in place restrictions on foreign ownership of residential property in certain regions like Sydney or Melbourne - just like Hong Kong and Vancouver have.

      Commenter
      Jason
      Date and time
      March 10, 2014, 6:51AM
    • Paul Sheehan, thank you.
      Governments from both sides of the political fence have contributed to this situation - and, if so inclined, they could change the likely trajectory of future events. It wouldn't take much to change the rules - for investors or first time home owners from overseas or locally.
      There are plenty of examples from other counties to guide the government in developing new rules.
      What do our politicians want to see happen in this matter?

      Commenter
      Howe Synnott
      Location
      Sydney
      Date and time
      March 10, 2014, 7:14AM
    • John Howard and Peter Costello (and the people who voted for them) created the unaffordable housing situation that now exists in Sydney.

      Firstly, John Howard changed the entry conditions for people to immigrate to Australia.

      At the same time Peter Costello halved the capital gains tax for investors creating a massive economic imbalance in the housing market.

      What did John Howard do to try and fix this problem he created. Er, quickly build more houses he says!

      The councils in Sydney had other ideas restricting housing development because they wanted federal government to put money into road infrastructure.

      Nothing has changed since then!

      Commenter
      Andy
      Date and time
      March 10, 2014, 7:15AM
    • Well the Libs are in power now so they should do something about it!

      Commenter
      Paul
      Date and time
      March 10, 2014, 7:19AM
    • Of Course Regh, John Howards halving of the capital gains tax would obviously not had any affect on encouraging people to speculate on housing now would it? Labor has done nothing to address the real issues either.

      Maybe both parties believe the Chinese will do what the Japanese did before them in the 80's when they were heavily invested in Australia and they're economy tanked.

      At the moment both parties lack any real vision for this country and are caught up in a political hate game that will come back to bite the Australian people in the end. Labor being the lesser of 2 evils at the moment. Ultimately both parties are just a reflection of an apathetic and selfish electorate.

      Commenter
      assumptions assumptions assumptions
      Location
      On the short side
      Date and time
      March 10, 2014, 7:24AM
    • Tilting at windmills

      The number of those visas being issued is very small, and even if it weren't, the issue in the housing market (as Paul correctly points out) is at the lower end and the dearth of first-time buyers able to enter the market.

      High net worth foreigners buying large expensive houses in small numbers do not affect this at all

      Commenter
      pjh
      Date and time
      March 10, 2014, 7:32AM
    • 1) Both political parties are run by people that have property investments and they are spooked by the talk of budget deficit. The government's AAA rating is at the expense of huge jump in household indebtedness level- 40% in 1995 to almost 150% of household income in 2012.

      The Carr government cut the over 50 years old of subsidies to the housing land development cost by almost $100,000 each and he cut home land release by about 90% in 1995. Over night, all land values jumped by $100,000 or more for no intrinsic reasons as a result. These higher values then spread to the whole nation. The much higher Aussie household debts of the last few years could be directly attributable to this policy decision.

      2) We love to live in the city and the politicians have no attitude of nation-building at all- no infrastructure to help people live along coastal regions. But politicians are happy to let private owners of infrastructure to rip average Aussie households.

      3) In China, Hong Kong, Singapore and Malaysia, they have strict limitations on foreigners owning properties. Just ask the students from these nations studying here. But the COCKY Aussie politicians think that they should be magnanimous to the 'poor' Asian people allowing anything and anyone to come and buy into the Australian property market.

      4) From 72% home ownership level in 1995, we are now just over 60% in 2012- in less than one generation. Aussie politicians of the last 20 years have all but destroyed the future of a huge number of the average Aussie so that they could maintain the value of their investment properties.

      We may have to wait for younger politicians with no investment properties or any properties to come and change the whole attitude.

      Commenter
      jiaberg
      Location
      Hornsby
      Date and time
      March 10, 2014, 7:55AM

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