Are Chinese buyers really abandoning Australia?
I’m wondering if this is all BS.
The talk recently has been that the Chinese are “abandoning Aussie property”.
Take this story from the AFR the other day:
Chinese real estate agents are reporting a sharp drop-off in Australian sales over the past six weeks as new property taxes take effect, while others report Beijing’s tighter capital controls are also hurting demand.
…David Wang, the vice-general manger of international sales at Chinese agency 5i5j, said sales of Australian property had dropped 80 per cent in July.
And he’s expecting an equally poor result or even worse figures in August.
“The main impact is from the introduction of new taxes in Australia,” he said.
Mr Wang said the Australian government may have “over-estimated the attractiveness of the market” for Chinese buyers.
I’ve seen variations of this story doing the rounds all over the place. Most haven’t questioned whether it’s true or not. They’ve just accepted that for some reason, China is just not that into us anymore.
“Have you found someone else?!?”
But you’ve got to remember that these Chinese real estate agents would love to see the recent sling of taxes aimed at foreign buyers removed. It’d mean more money for their clients, and more money for them.
So when they’re throwing numbers around like an 80% drop in sales, I tend to be a little sceptical.
The other thing to remember is that without Chinese and foreign buying, it’s difficult to square away what’s actually happening in the Australian property market right now.
The key chart here is this one. This tracks dwelling prices and mortgage finance.
You can see here that Housing Finance Commitments and Dwelling Price Growth normally move in lock step. That makes sense. It’s finance that buys houses after all.
But what’s interesting is that that relationship has broken down over the past couple of years.
Finance fell away, but dwelling values held up.
The other thing that’s interesting is that this is pretty much another one of those ‘just Sydney and Melbourne’ stories.
The break-away has been clear in Sydney…
…but most pronounced in Melbourne…
It’s not such a story in the other capitals.
So it begs the question: What’s with the disconnect? What’s caused it? Will it persist?
Of course, the most likely culprit is Chinese buyers. Why?
Because Transparency International (a corruption and money-laundering watch-dog) reckons that 70% of Chinese buyers buy with cash.
Cold hard cash.
So you’d have to imagine that that the Chinese would have to be a big part of the story. A large influx of buyers – the majority of who pay with cash – would certainly help explain why the relationship between finance and house prices is breaking down.
However it does suggest that the Chinese buy is bigger than we imagine.
Right now, the data we have isn’t saying that the Chinese buy is huge. The NAB survey reckons that foreign buyers account for 11.6% of new properties (trending upwards) and 5.6% of existing properties (trending downwards).
But remember this isn’t the official data. This is just some survey work from NAB. It might not be the full picture.
And the official data?
Well, that’s awkward. There doesn’t seem to be any.
(I’m sure it’s not that important.)
Fairfax did a little digging. (Interestingly, when I went to find this on The Age’s website, it’d been taken down. I had to go to the Illawarra Mercury for the link… Too hot to handle???)
Foreign purchasers are buying as much as 40 per cent of all new apartments in Melbourne, with new figures showing a surge in a tax raised from offshore investment.
Official data, released to The Age under freedom of information legislation, reveals that a tax on foreign buyers of residential property, introduced in mid-2015, has become a significant money-spinner for the Andrews government, with revenue almost doubling in a year.
The tax was levied on 4,000 transactions.
However, while the tax now generates substantial revenue of more than $133 million, it is not specifically itemised in state budget papers.
Property industry insiders and analysts believe this is because of the political sensitivity around foreign ownership and declining housing affordability.
The figures come as a separate analysis by leading property advisory firm Charter Keck Cramer found about four out of 10 of Melbourne’s new apartment purchases are to offshore buyers.
4,000 foreign transactions in a year in Victoria alone. The Chinese account for 40% of new apartments in Melbourne. 70% of Chinese buyers paying with cash. An ongoing disconnect between finance and prices….
Hmmm. I’m not a detective. But all these pieces of the duck are starting to look like a duck to me.
And that duck is not saying that the Chinese have “abandoned” Australian property. Far from it.
That duck is saying “Quack Qvaaaak Quvakk.” That loosely translates as the Chinese are here, they’re here to stay, and they’ll keep contributing to house price growth.
Some academics at Griffiths University said that between 2004 and 2014, a quarter of the price growth in Sydney and Melbourne as due to foreign buyers. And that was before finance and prices disconnected and the cash buyers landed.
Maybe it’s even more.
But that’s the problem with having world-class cities. They become world-class investment destinations.
That doesn’t change over-night.
So yeah, to me it all says, let the taxes stay. And take the self-interested whinging with a grain of salt.
What have you heard about the Chinese buy?