It’s no secret that Australian home prices are now among the most expensive in the world – and that local first home buyers are struggling to get into the market. Sydney and Melbourne are at the forefront of the price boom and now rank as the 4th and 5th most expensive real estate markets in the world.
The increasing profile of Chinese property buyers – especially for luxury homes in Sydney – has led to a spate of media headlines claiming that China’s new rich are driving up Australian house prices; and they are the prime reason for the skyrocketing prices pushing Australian buyers out of the market.
The often sensational headlines and media reports have touched a public nerve, sparking claims and counter claims about the actual impact of Chinese real estate investors on Australian house prices.
The debate was accompanied by the recent release of a report by Credit Suisse titled “The Chinese Property Boom Down-under”. The report found:
- The Chinese are currently purchasing more than $5 billion of Australian residential property per annum.
- This accounts for 12% of new housing supply.
- They are concentrating their buying and acquiring 18% of new supply in Sydney and 14% in Melbourne.
- While Australia has some of the most unaffordable housing in the world, further strong Chinese demand can push prices even higher.
(Credit Suisse – The Chinese Property Boom Downunder 4 March 2014)
But does this finding support wider claims that aggressive Chinese buyers are pushing Australian home buyers out of the market?
The obvious point about the report is that 88% of new housing supply is NOT being bought by Chinese buyers – and no breakdown or analysis is offered in the report who these “other buyers” might be, where they might be from and what role they might play in creating price pressure. And it is NEW, mostly off the plan housing that investors are permitted to purchase; they are not able to purchase existing houses. The hype is reminiscent of that accompanying Japanese investors buying in Queensland back in the 1980s; interestingly, no mention is made of American investors, who up until recently were the largest foreign buyers – could it be that until they open their mouths they look just like us Aussies?
The Credit Suisse report does make one very important and major qualification – although the value of total Chinese purchases is equivalent to 12% of the value of Australian new building approvals: “While significant, this amount is probably not enough by itself to significantly drive up property prices across Australia.”
The report concludes that while Chinese buyers may not be a major player in the national housing market, they are clearly a much more powerful force in Sydney and Melbourne. And around the world, last year US $37 billion was spent by Chinese on international residential property (juwai.com) – the major motivation, according to the Juwai website, was for education (for their children to live in while acquiring overseas qualifications). And in times of significant cuts to the education budget, high fee-paying international students are a welcome addition to all tertiary institutions.
The ongoing legitimate concern over housing affordability – further fuelled by the recent spate of often negative publicity for Chinese buyers – has prompted the Federal Parliament to launch a review of current foreign investment laws to examine if local property market prices are being pushed up by overseas investors. Terry Ryder, writing in the Property Observer, describes us as a “nation of wankers” in our attitudes to Chinese investment and that we protest only when investors are Asian. (propertyobserver.com.au)
The problem with the attention focused on Chinese buyers is the lack of accurate data and inconsistent analysis of exactly where the price pressures are coming from.
One of the most strident critics of the anti-Chinese buyer sentiment is commentator Bernard Keane – who summed up his repudiation of claims linking housing unaffordability to Chinese buyers as follows: ”There are legitimate grounds for concern about housing affordability, but they’ve got little to do foreign property buyers, whether Chinese, Canadian or any other ethnicity. They’re related to land supply, planning laws, development approval processes, NIMBYism, the balance between local councils and developers financing the necessary infrastructure for new housing, and tax expenditures that encourage investment in existing housing stock. The best way to improve housing affordability -assuming that’s what you really want to do, given ultimately that will reduce the rise in value of the key asset of most voters – is to create incentives for investment in building new housing stock.” (Wednesday, 12 March 2014 Smart Company / originally appearing in Crikey)
Chinese investment is vital to many sectors of our economy and that in turn helps drive employment and growth. Xenophonic headlines and those spruiking them are the ‘wankers’.