Rich foreigners are buying their way into the country and stealing our homes.” It’s only a matter of time before this becomes a catch-cry on talk back radio. For the sake of the market, and the country, we need to get on top of this.
I keep a close eye on Canada. Politically and economically, we tend to move pretty close together.
That’s why it was interesting last week when Canada scrapped it’s controversial Immigrant Investor Program. The scheme is basically just a way for rich people to buy permanent residency.
Trouble was, they under-estimated how rich the developing world, particularly China, was getting, and how fast.
As I’ve said before, China is creating 25 billionaires a month!
In that context, the paltry sum required for a Canadian Visa was barely loose change.
To qualify for the IIP, all you had to do was “loan” the Canadian government $800,000 interest free. At the end of 5 years, they gave it back.
What billionaire would even blink?
And so there was a phenomenal surge in visa applications. Embassies stopped taking applications once they had something like 50,000 in the backlog. Last week, they scrapped it altogether.
The scheme had been copping a lot of flack. It was pretty unpopular.
But I wonder if many Australians know we’re running pretty much exactly the same scheme here, though the terms are a little less generous – but not by much.
To buy an Aussie Visa, you need to be bringing $5m into the country with you. But it doesn’t seem like there are clear guidelines about where that money needs to go. In fact, like Canada, a lot of it goes into government bonds.
The New South Wales government mandates that applicants who want to come to NSW must allocate at least $1.5 million to buy Waratah Bonds.
So let me get this straight. In order to buy your way into the country, you’re “forced” to invest a good chunk of wealth in some of the safest and highest paying bonds in the world?
And I thought our governments, with their gold-plated credit ratings, had no problem securing cheap finance from the markets. Do they really need to be propping up demand like this?
And is it worth selling residency for?
And why we are we attracting business leaders with significant assets, only to force them to buy the most riskless and brainless assets on the market?
It’s madness.
I think the basic idea of an investor program is a good one. If you want to come to the country, start up a business, employ some locals, help Australia compete in a global economy, all power to you.
I’ll personally be rolling out the welcome mat.
If the program was about attracting talented business people then I’d be all for it. If you ask me, entrepreneurs – and from all parts of the world – have made Australia what it is.
But the problem is that the program uses wealth as a proxy for entrepreneurship and business nous. That’s just not always the case. Particularly if the biggest determinant of wealth in your country of origin is your ability to milk party political contacts.
And it sticks in the throat a bit. We’re very serious about border control. Unless your rich. Then you can do what you want.
It’s a recipe for the kind of resentment that brought down Canada’s program.
The government needs to get this straight. The fear I have is that immigrants, especially the long-suffering Chinese, will end up being scapegoats for problems that have nothing to do with them.
The latest data show that the new government has ramped up investor visa approvals. 73 visas were approved in the last two months of last year, compared with 15 approvals through the life of the Labor government.
Australia is open for business, apparently.
And my fear is that housing is going to be a flashpoint in this conflict.
We already know, especially if you’ve been reading my blog, that Chinese buying is having a huge effect on the market.
Foreign buyers are already making up a fair chunk of new and existing home sales. Something like between 10 and 15 percent. This chart here comes from NAB.
But these are national figures. It’s quite likely that in markets like Sydney and Brisbane, the shares are much larger.
And they don’t need to be much larger before they’re eclipsing first home buyers.
This sets up a dangerous tension.
Juwai.com estimates that 63 million Chinese are now wealthy enough to buy overseas. They say Australian buying has increased 9-fold in the past three years.
More and more companies are marketing real estate directly to China. I was on realestate.com.au last night scouting out a few properties and this banner came up:
And we know all this Chinese buying is having a big impact on prices. The danger this creates is that we’re setting up the situation where our first-home buyers are seemingly in competition with the Chinese.
Now, theoretically, you can’t buy here permanently unless you’re a permanent resident, but there doesn’t seem to be anybody policing that. And the Foreign Investment Review Board has been keeping very quiet on what’s actually going on.
A Fairfax journalist put in three separate freedom of information requests. All he got back were four pages covered in white-out.
So you can hear the loony fringe now can’t you?
“The Chinese are stealing our homes!”
We need to get on top of this.
Even if that means putting a bit of a break on foreign buying for the time being. Australian property has its own head of steam. The market is moving into cyclical strength. We can afford it.
Because if we don’t get on top of it – and even just getting some actual stats on what’s going on would be a start – then I worry it’s just going to going to create a climate for much more reactionary, and potentially racist, policy responses in the future.
And for the market, and the country, that’d be a real tragedy.
con says
Are the Chinese buying the same product first home buyers are competing for? If i had bought a visa for $5M would i be purchasing a one bed apartment or a $300K house in the sticks? If i was purchasing top end stuff would that make entry level products more expensive? i am unsure whether allowing foreigners to purchase aussie property is a bad thing as the product still stays here. they can’t take it away with them to where they came from and the aussie vendor gets their foreign money to spend in this country so the country is getting richer. maybe i am missing something? there have always been times when foreign money runs the market a little hotter but it always seems to balance itself out and there will always be benefits and opportunities for those involved in the property market
Drake says
Let’s face it – if we can attract business’s savvy people with 5million plus to invest in our economy, we should be advertising this on every billboard in Asia.
Foreign investment of this nature is a blessing to our country and economy. The naysayers need to get over their xenophobia.
The world is flat and competitive globally. It’s better that people overseas are investing here than Aussies are taking their money overseas
chassin says
https://knowledgesource.com.au/cash-for-visa-property-scandal-set-to-explode/#fromemail
chassin says
What is the most ridiculous is also that for the below 650k new properties in NSW, foreign buyers are given subsidy of AUD5000 from the NSW Treasury/State Revenue, while as you mentioned above, the number of wealthy buyers in China alone means that if they want to buy, they will be vying to buy regardless of the AUD5000 grant. This is what should be available to NSW/Australian taxpayers only, and not to line up the already deep pocket/wallet of foreign investors. This is just plainly insane, and unjust, especially in the field of property, which provides a shelter to Australian residents, i.e. it is to meet basic human needs, not a commodity by nature.
Charise says
Totally wrong. It doesn’t make sense to give them subsidies at all especially now that foreign purchases they have picked momentum.
Charise says
We are now in a global economy. By burying our heads in the sand the whole economy could go down the manufacturing path. Read the signs of the times. We need to be more competitive globally and be versatile to read the writing on the wall. Let’s be proactive with this. Government policies can only protect first home buyers for so long before a new government or a new policy topples it on its head. Let’s be more proactive and have a global perspective on the economy. The Australian economy is one of the strongest in the world. We should not be having problems competing globally unless there are other underlying issues that need to be fixed. Those are the issues that need to be addressed – Urgently.
Kat D says
Mr Hockey put a stop to an acquisition by US company of GrainCorp (to appease National Party members, perhaps to the detriment of Australian investors in that particular market segment, not to mention the millions of workers whose super savings are at stake here…) Will he do anything to prevent mass foreign takeover of Australian homes by imperialist communists? The unscrupulous real estate industry needs to be reformed and banned from flogging Aussie dwellings overseas because manufacturing has already had enough of a shake-up, and the poor farmers have enough droughts, storms, floods and fires to contend with. The retail sector and print media are shrinking. Urban dwellers are banned from having firearms, and keep getting trapped on tollways in ever increasing traffic jams while commuting to their often dreary jobs.
I keep reiterating that Australia needs to reduce its dependence on foreign funding by curbing its excessive consumption of imports, while implementing fair trade and ethical investment. Genuine mum&(gran)dad Australian investors can’t trust the Liberal Govt when they have to compete with demands from zombies (a great article that you wrote recently!) for free trade and subsidised air travel. Australians are overtaxed by the Federal, state and local governments so we don’t need a fourth tier in the guise of United Nazis (which is what UN demonstrably stands for).
dove says
Yes foreign nationals will buy in Australia as we have a rock solid Land Title System that does not exist in other countries and China is one of them. You don’t have Comrade Bob knocking on your door at 3am telling you they are about to take your house as they “need” the land. Why do you think they are rushing over here??? And yes they will buy up whatever makes most economic sense as they can house their “student” son or daughter in the $300K property. If they put their dollars here it just over inflates the price of homes and has a trickle down affect on everything else. Everyone needs to get over the manufacturing boogie man. Manufacturing was winding down in the 50’s. Our wages are too expensive. We make more money from services that any “product” that we have sold in the last 50 years. We need to wake up to ourselves and stop subsidising poorly performing industries simply to save a couple of hundred jobs.
ianjkelly says
All – Who said foreign individuals were purchasing ONE property. The brutal fact is that money in Australia is safer than money in a Chinese bank. They buy more than one property. They also do place sons/daughters into these homes to study and quite often more than happy to throw money into a business to let it fail, to get residency.
Now what we actually need is to direct it into the RIGHT area’s. Not pricing young families out of the property market but in business and areas that MAKE sense and develop Australia. How about an investment program for infrastructure. Pool the money together, build a high speed rail network between Brisbane – Sydney – Canberra – Melbourne. Pool the money together and build the 2nd Sydney airport.
Put the money into useful areas that will benefits all Australians, existing and new!
Cheers
Ian
jota668 says
I thought that we were a capitalist economy that embraced the principle that greed is good and that capitalism was the road to nirvana. Clearly that seems to only apply if are white and of british convict stock. If you are chinese (or asian in general with money) then you must be corrupt and coming to steal our homes and livelihood. Let the free market decide. The scheme is NOT basically just a way for rich people to buy permanent residency – clearly the scheme is required to prop up our economy – why else would government require the money go into bonds. 73 visas were approved in the last two months is hardly the yellow hordes from the north swamping us. China is creating 25 billionaires a month – Australia can probably count all its billionaires on one hand. We would all be far better off migrating to China to secure our share of the spoils instead of bleating like sheep.
carlos says
“I thought that we were a capitalist economy that embraced the principle that greed is good and that capitalism was the road to nirvana”
Wow, what a sad statement from someone living here! Jota, I am an immigrant myself but I think that I understand why we pride ourselves of being the lucky country… and it is not precisely because of that. With love, mate, give up your resentment…
Carlos
Dian says
It is now up to “We The People” to have a voice.
In a Global Economy, what Australia really needs is a new Constitution free from British Imperialism with a Bill Of Rights so that we can have a say on matters that affect us.. Eg: Like the subject of this blog.. Because as things are now, we really don’t! We need to be a self-governing republic, and not be subject to the whims of the monarchy via The Governor General who has the last say on who we elect as our leader.. And whether they remain in office, [Remember Whitlam & Rudd]. We need to have a government free from tampering and manipulation by the Monarchy and their puppets. Only then perhaps we can turn the boat around.
Btw: If we had an individual Bill Of Rights built into our Constitution we would not be subject to Speed Cameras having the last say.. It would be unconstitutional! I vote for a monarchy free Australian Republic!
Robert says
We need an extended period with limited immigration. With more than 27% of our population (and growing) not born here, we are rapidly reaching the point where Australia is not about Australians.
Peter Phelan says
Couldn’t agree more Robert.The country is being handed over lock,stock,and barrel
angelacockburnAngy says
I recently sold a bottom of the market property to a Chinese buyer. I understand it was one of a number of properties he bought, and to date he hasn’t even informed the tenant where the rent should now be paid. Yes, of course, it was for a “student son”. He decided fast, did no due diligence, and got ahead of the local market that way.
Asian Investor says
I totally agree with this article.
The fact is the Chinese will keep buying properties here because it is cheap for them and is loaded up with cash. Australia needs to put a limit or regulate direct ownership of property investment. If you’re going to invest in some countries you can only have 40% +/- ownership. The rest you have to partner up with a local. If you want to invest in China, you can’t have full ownership either and must partner with a local. Why can’t we do the same here? Fair is fair! Isn’t it?
Did you know that it isn’t just Australia that they’re buying properties either. They’re also buying up BIG TIME in US – and they’re snapping them up not one or two at a time but hundreds at a time! That’s right hundreds at a time. How do I know? Because I invest in US properties myself. In fact, I prefer to buy there more than here because 1. To hedge and 2. If you can afford to buy a decent property in Australia, you can buy up to 10 or more, positive cashflow properties at the same time… But anyway, back to my rant…
Properties in China are overheating as well that in order for the Chinese Government put a curb on their spending – not all Chinese are getting approved for loans from their banks to buy properties in China. However, if a Chinese was to go to their local bank and say they’re using the money to invest in properties in Us or China – they’ll throw money at hem and get approved in no time.
So what do you think this is going to do in the long run? in terms of Australia? Well for a start, we’ll eventually have a property bubble and the ones that are going to be affected are Australians. Not the Chinese. Australians, will find it harder to maintain their mortgage payments, sell up and more Chinese will eventually, snap up more quality properties at even more discounted prices.
It’s a pretty smart move by the Chinese in that their banks will happily lend for Chinese to invest overseas. If a property bubble was to occur in China, the effects probably won’t be as severe as what the Japanese had when they had the Japanese property bubble. The effects were truly felt in Japan because they hadn’t fully diversified their risk outside their own country. Even though they did, it was already too late for them.
Question is, if there was a property bubble here in Australia and it did burst, will it affect the Chinese. I highly doubt it would. WHY? Because the Chinese the Chinese does’t invest in the short term like most Westerners do, in search of quick profits. They invest in the long run. Not just for their children but for their children’s children. In fact, if they can go further down multiple generations, they will do so. So if there was a property bubble here in Australia, it would only be like a blip in their radar.
I do wish our Government would be more proactive towards foreign direct investment, especially with properties.
By the way, I don’t have anything against the Chinese for I am asian myself. My rant is probably as long as the original post – just needs a few images and you have another blog post.
Just telling you how it is.
Regards,
Asian Investor
Charise says
Yeah the Chinese are snapping up properties in many countries around the world. Just take a look at the Australian owned Chinese based Juwei.com. The reality is, the Chinese have more than US$3.5 in their reserves that are being put into projects around the world (hedging). Africa for example, received US$200 for infrastructure projects from China in exchange for natural resources. Of course the new infrastructure will be used to transport the Chinese resources more efficiently – still a win/win.
I agree with the comments that policies need to be put in place that will place foreign investments where they have the best impact on the economy. The Citylink in Melbourne being an example. There is always risk of ‘losing out’ to foreign investors and that’s where good solid long-term government policies help.
My take is – it’s a global economy. We need resources coming in (skilled labour, finance etc) and going out (services, commodities etc) to survive especially with the increasing bill from the below 20yrs and above 65yrs population. Let’s safeguard our interests to have win/win partnerships with China and we don’t have to be doomed if do and doomed if we don’t ride the wave.
Charise says
To clarify my earlier post, China has US$3.5 Trillion in their reserves with $200 Billion already invested in Africa.
carlos says
“Now, theoretically, you can’t buy here permanently unless you’re a permanent resident, but there doesn’t seem to be anybody policing that.”
Jon, if this is true it is sad some people (I bet just very few) are breaking the law because of this. If we have a rule already in place, why do we need something else?
Oh, money for the sake of money… the root of all evil 🙁