The government’s obviously been reading my blog and has launched a review into foreign property buying. But it looks like they’ve missed the point, leaving us all in the dark.
Well that escalated quickly.
I’ve been writing about the impact of Chinese buying for a while now. And in the middle of last month I predicted that it was going to become a hot-button topic.
(See: Scandal Set to Explode).
Less than four weeks later, the media frenzy is in full swing and the government has announced an inquiry.
I don’t have a lot of faith in inquiries to produce anything of worth, but the government saw that this was a brushfire that was about to get out of control, and they needed to do something.
The one hope I have that the review delivers some better data than what we’ve currently got. Not because I think that data would show us anything radical and scary. Exactly the opposite.
Good data is the antidote to wild conjecture and rumour.
But it’s not clear to me from the inquiry’s terms of reference (TOR) that that is what we’re going to get.
Let’s break it down to get a better idea of what we can expect.
The TOR opens strongly:
The overarching principle of Australia’s foreign investment policy, as it applies to residential property, is that the investment should increase Australia’s housing stock. The policy seeks to channel foreign investment in the housing sector into activity that directly increases the supply of new housing (such as new developments of house and land, home units and townhouses) and brings benefits to the local building industry and its suppliers.
Bravo. As I’ve written elsewhere, Australia just doesn’t build enough houses. Build rates have been falling every year for the past decade. This is probably the primary driver of house prices over the long run.
In that sense, anything that helps bring new supply to the market should be welcomed with open arms. If it takes Chinese buyers to make it happen, then I’ve got no problem with it.
The TOR then goes on to frame what it thinks is the problem:
Consistent with this principle, foreign investors are able to seek approval to purchase new dwellings and vacant land for residential development. Foreign investors cannot generally buy established dwellings as investment properties or homes; however, temporary residents can apply to purchase one established dwelling to use as their residence while in Australia.
And this is the sticking point. No one really seems to care about Chinese buyers buying apartments in Melbourne’s CBD off the plan. It’s when they’re buying existing houses in leafy suburbs of Sydney that everyone goes crazy.
What’s the difference? Really? Is it because we don’t mind them buying places we don’t want to live in ourselves… but when they start competing with us or our children for the places we love… and out bidding us – then it’s a problem. Is that it?
The only problem I have with it is that we’re missing an opportunity to channel this money into increasing the housing stock and building nation’s wealth.
And there are anecdotal reports emerging about temporary residents or foreign nationals side-stepping the system. Like this snippet from the Sydney Morning Herald:
Buyer’s agent Shane Clinton of Buying Houses Australia says overseas buyers often side-step requirements that they only buy new property by purchasing established dwellings in the name of already established family members.
The significant investor visa has taken a while to get traction, it’s building now, but it means that to date 99 per cent of my clients have been buying outside the recommended visa guidelines…
In Mosman, where more than 30 per cent of prestige sales last year were to buyers from China, McGrath agent Michael Coombs said of the eight sales he made to Chinese buyers in the past six months, three were to visa holders and five were purchased in the names of a family member.”
99 percent of clients buying outside the visa guidelines? There’s an awkward stat.
We reportedly sold 5,091 existing homes to foreigners in 2012-13 (valued at $5.42 billion), but if these anecdotal reports are true, this could be a massive under-estimation!
And with so much uncertainty flying around, it’s fodder for anyone who wants make provocative and sensationalist claims.
And so this is where the TOR lays out what the questions the committee wants to ask.
Notwithstanding these settings, concerns are raised periodically in relation to the possible impact of foreign investment on the Australian housing market.
In this context, the Committee is asked to examine;
- the economic benefits of foreign investment in residential property;
- whether such foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers;
- how Australia’s foreign investment framework compares with international experience; and
- whether the administration of Australia’s foreign investment policy relating to residential property can be enhanced.
But can you see the gaping hole here? The committee is just going to run into the same brick wall that I’ve run into when trying to get a handle on what impact Chinese buying is having – there’s not enough data, and the data we do have is opaque and difficult to make sense of.
But a review of the rules themselves (and whether the rules are actually being enforced!) is very welcome.
We’ve got to take the guessing and conjecture out of this topic. As I’ve said before “foreigners buying our homes” and “our kids can’t afford to buy a house” are both hot-button topics.
Combine the two together and you’ve got a very volatile mix.
A healthy dose of data should chill everybody out I reckon. Even if there’s a problem, we’ll then be able to know how to deal with it.
Are you listening Canberra?