{"id":362,"date":"2015-06-04T03:17:39","date_gmt":"2015-06-04T03:17:39","guid":{"rendered":"http:\/\/www.microburbs.com.au\/blog\/?p=362"},"modified":"2015-06-12T04:14:41","modified_gmt":"2015-06-12T04:14:41","slug":"what-happened-to-australian-property-prices-when-foreigners-invested-9-billion-in-one-year","status":"publish","type":"post","link":"https:\/\/www.microburbs.com.au\/blog\/what-happened-to-australian-property-prices-when-foreigners-invested-9-billion-in-one-year\/","title":{"rendered":"Chinese nationals aren’t the only foreigners splurging on Australian property"},"content":{"rendered":"

Over the past 12 months there has been much debate regarding the impact of Chinese investment on residential real estate.\u00a0<\/span><\/p>\n

In one corner we have Simon Henry, CEO of Juwai, the Shanghai -based Chinese property portal, arguing that Chinese investment is propping up our economy and warning against tighter rules; \u00a0“At a point when foreign investment is needed, extra restrictions are being put in place”. \u00a0He says that negative publicity singling out China is widely reported in the press there. \u00a0<\/span>“We see a lot of politicians in Australia saying that they are looking to review and stop Chinese investment specifically, as opposed to foreign investment. \u00a0<\/span>“It seems to be a dual message being given, that ‘Yes, we want your investment, but we are going to criticise you if you do invest’.”<\/span><\/p>\n

In the other corner commentators, including Clive Hamilton of the Australia Institute, warn that cash pouring in from China is making housing unaffordable for ordinary Australians: In \u00a0a controversial article last year he said\u00a0<\/span>“Every weekend in Sydney, young Australian couples are turning up at auctions excited at the prospect of finally owning their own home, only to find that other bidders are wealthy foreign buyers with money to burn”.\u00a0<\/span><\/p>\n

Since then the majority of media on the issue has focused on Chinese investment, neglecting to note that Australia is a very attractive destination \u00a0for foreign property capital in a shaky global economy. \u00a0<\/span><\/p>\n

But are Chinese buyers really that dominant in the market? \u00a0We took a look at the\u00a0Foreign Investment Review Board (FIRB) data – this \u00a0only covers approvals for investment but is still one of the best data sources available.\u00a0<\/span><\/p>\n

FIRB approvals for Chinese national investment 16% of total<\/span><\/strong><\/p>\n

The most recent FIRB report (2013-14) shows that buyers from many nations are investing in Australian property, with billions pouring in from around the world. \u00a0<\/span><\/p>\n

Total foreign investment in property 2013-14 was $75 Billion, $35 Billion of which was for residential property. \u00a0\u00a0<\/span>Chinese property investment was 16 percent of the total, at $12 billion and double the next largest nation (USA at $6 Billion). Singaporeans invested $4 Billion, Canadians $3 Billion, and Malaysians $2 Billion. \u00a0 Unfortunately, the FIRB does not publish the break down of residential property investment by nationality. \u00a0A \u00a0Credit Suisse Report, however, has estimated Chinese residential property investment over the period at $9 Billion.\u00a0<\/span><\/p>\n

Capital has switched from resources to property – this is a global trend as wealthy people seek safe havens for capital<\/span><\/strong><\/p>\n

It\u2019s sobering to compare the ratios of investment across sectors of the economy and the dramatic switch to real estate. \u00a0A few years ago most foreign investment was going into mining. Post the collapse of resource markets, money is pouring into property as a safe haven for capital. \u00a0The figure below shows that at the height of the resource boom in 2008-09, property investment was less than $10 Billion compared to $90 Billion for mining. \u00a0In 2013-14 \u00a0mining was down to $20 Billion, \u00a0compared to $75 Billion for property. \u00a0If nothing else, this shows why our leaders are conflicted about how to handle the situation.\u00a0<\/span><\/p>\n

\"Approvals<\/a><\/p>\n

 <\/p>\n

The switch of Chinese capital from mining to property shows the same pattern.<\/p>\n

\"China<\/a><\/p>\n

 <\/p>\n

In future years, analysts predict that the Chinese share of total foreign investment in property is likely to grow. \u00a0Credit Suisse projects a further $60 billion over the next six years. \u00a0<\/span><\/p>\n

Australia needs new housing stock but it also needs citizens to be able to afford to live close to major work centers – in this context, Chinese national investment in Sydney and Melbourne may lead to structural problems<\/span><\/p>\n

In Sydney and Melbourne, Chinese demand now accounts for more than 30% of total new supply. In some preferred suburbs, it is overwhelming.\u00a0<\/span><\/p>\n

Sydney Real estate Agent, \u00a0Amy Baxter, \u00a0says in some inner city locations Chinese demand accounts for more than 95% of new stock. \u00a0\u201cBuyers acting for Chinese investors are queuing up for releases; \u00a0I can’t see any sign of a slow down\u201d. \u00a0S<\/span>he says some apartments will be left empty by absentee owners. \u00a0\u201cMany of the buyers don\u2019t care about rental income – they don\u2019t need the money and they don\u2019t want any hassle from tenants\u201d.<\/span><\/p>\n

A perfect storm for property inflation – low interest rates plus massive foreign capital inflows<\/span><\/strong><\/p>\n

Notwithstanding the economic stimulus, it\u2019s government\u2019s role to consider broader impacts on society. \u00a0T<\/span>he main problem for the government and the Reserve Bank is that ordinary Australian’s are trying to keep up with foreign buyers. \u00a0The low interest rates necessary to simulate an economy on the cusp of recession are enabling people to take on unsustainable levels of debt.\u00a0<\/span><\/p>\n

When the fear of missing out trumps the fear of crippling mortgage payments, statements by the Treasury secretary, John Fraser, \u00a0that Sydney and parts of Melbourne are in “unequivocally in a property bubble”, or by the head of the Reserve Bank, Glenn Stevens that Sydney house prices are “crazy” only add to the general anxiety.<\/p>\n

What to do? If you are an investor with borrowing capacity, punting on further gains on the back of foreign demand is tempting. \u00a0\u00a0If \u00a0you already own your home, you could settle back and enjoy the capital gain – as our PM, Tony Abbott \u00a0famously said, “I’m happy the value of my home is going up”. \u00a0If you are trying to buy your first home, or to rent close to work \u00a0in our major cities, its tough and likely to get tougher.<\/p>\n

Sooner rather than later, the government must address this. Concern about property inflation and housing affordability is flushing out the usual arguments around negative gearing, lending rules, super policy and other policy applying to domestic investors. Let\u2019s hope the noise generated does not distract policymakers from dealing constructively with the issue.<\/span><\/p>\n

A few things seem clear:<\/span><\/p>\n