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.
It’s impossible to find your way in the dark.
So data needs to be central to the inquiry. I guess they’ll figure that out at some point…
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?
Rew says
What gets my goat are the Australian tax payer funded incentives paid to overseas investors to buy Australian real estate. I’d happily have that tax back myself and be incentivised to buy more property!
bJ says
The Only people making money from this scam is the Government with there over priced stamp duty and the real estate agents. i had to laugh last night on the news Mcgrath real estate was saying this is the greatest thing ever to open the sale of properties to overseas investors from China….Yes Mr Mcgrath your bank balance would be looking mighty fine with all the million dollar properties your selling to them….of course you like it!!! The Australian people are losing out big time, first home buyers have been thrown out of the market. Even people looking for the second home. What is so dumb about the whole thing is, the chinese will rent it back to Australian’s and guess where the money goes…..back to China. We have the most stupidest people running this country….they think of the now and not what the impact will be in the future. The chinese governement has even stated that “if we own it, we do not care about your sovernty. If you have a look at countries that have opened there country for free trade to overseas investors the outlook for the local people is grim, the only one that’s profits are the fat cats, corp, multi nationals, politians…..the rest of us are screwed…..
Elizabeth Liddle says
Tnx for your comment and I agree with you completely! I’m just an ordinary older age pensioner and don’t understand a lot of the academic talk – but I can see the writing on the wall!!! I just wonder who’s going to ‘own’ Australia first – the Chinese, the Japanese or the Arab investors – not only in residential homes but land too!! Seems to me we’re fast losing our identity and that’s tragic! I’m glad I won’t be around to see the consequences of this shocking betrayal of the Australian people by Governments who can only see the ‘now dollars’ – but my grandchildren……….?????!!!!!!
Thank you for your comment, Elizabeth
Colin Glover says
Where there’s a will there’s a way. And corruption is inevitably the big winner. Witness the Obeid mob. We need to get a handle on this otherwise our sovereignty, in the long term, could be taken out of our hands.
Michael Campbell says
bj – you nailed it. Add the utility companies and councils to your list of profiteers. Most Australian residents are being forced out of the major city areas and will have to live in more affordable regional towns. Why should we and our kids have to move out to make way of temporary foreign nationals and overseas investors?
JJ says
As someone new to the real estate industry I am left wondering if I am the only one who is frightened by the fact that Chinese are taking over our country by stealth. I have advised my children to learn Cantonese and Mandarin.
John says
I often read your blogs, Jon, but usually don’t comment. But just looking at the comments that have been left so far I felt I had to weigh in.
I seem to be in the minority among commenters so far in that I view this as a great thing for the Australian economy and for anyone with the sense to stop complaining about it and take advantage of it.
Here’s an idea for some of the people commenting above, if you’re worried that Chinese investors are going to buy up all the property and hugely inflate prices, then I suggest you go and buy some property right now so you can watch the price of YOUR property go up.
The fact people from overseas are investing in our economy means our economy is stronger than other countries’, and with their investment they’re making it even stronger, which is good for all of us.
If you think this is good for business and not “ordinary Aussies”, then why don’t you go and start a business and take advantage?
As Jon says, what we really need is more data. But regardless of the full figures of the situation, it’s safe to say the worst thing anyone can do about it is to stick to working in their 9-5 office jobs and haggling for a 3% pay rise and complaining about their rent going up.
People need to recognise foreign investment for the great opportunity it is rather than getting caught up in the xenophobia.
And JJ, I think it’s wise to advise your children to learn the most commonly spoken first language in the world. You should probably do that regardless of who’s buying property in Australia.
Robbie says
John, I do like your thoughts and also agree that people need to take charge of their own situation. You’re fortunate (and no doubt have worked hard to create your own fortune) to be able to buy property. It’s not that simple for the majority.
Not everyone in society can be an entrepreneur – if everyone who wanted to buy a property quit their 9-5 jobs and became entrepreneurs as you suggest there wouldn’t be much manufacturing or production as nobody would be left to work those essential 9-5 jobs.
For the majority who are working (young people just starting out in particular), it takes a LONG TIME to save enough money for a house deposit, and have enough to cover additional costs (stamp duty, settlement costs etc). Those that don’t have at least a 20% deposit are then slugged with Lender’s Mortgage Insurance!
I’m doing everything I can to get on the property investment ladder (including living in the hot, fly invested northwest of WA!) and am extremely grateful I’ve got this opportunity; you make sacrifices by living up here for the sake of earning a higher income, but it’s still not easy to save enough for a house deposit.
I’m all for foreign investment if it’s increasing the supply, but it seems short sighted to be letting foreigners buy established property through rules that appear to be easily flouted. Simply increasing demand and not supply only punishes young Aussies.
John says
You’re right there has to be a balance and it would be a problem if it ever reached a point where the majority of working-class Australians were completely priced out of the market. I doubt it’s ever likely to get to that point though, especially on the back of foreign investment alone. Houses, like everything else in this world, are only worth what they sell for, so unless 90 per cent of house sales were to cashed up foreign investors, median house price can’t outstrip CPI too much because the wider the gap between the median house price and the average wage, the fewer potential buyers are priced in. If there’s a sharp price rise in Australia driven by foreign investors, then those same foreign investors will start to look for other countries with similar economic conditions to Australia and a more accessible housing market – they’re not going to get to the point where they’re paying $5M for a one-bedroom flat in Campbeltown if the average Aussie can only pay $300 a week to rent that place.
Of course not everyone can run their own business, but Australians need to understand that it’s not reasonable to expect to get rich while working for a salary. A person who wants to be wealthier than average has to do something beyond what the average person is doing, that’s just simple logic.
I lived in China for a few years and I saw basic working class people with a household income of 2000RMB per month making massive sacrifices to buy a 300,000RMB apartment. I came back to Australia and saw young couples complaining that they were priced out of the housing market because the bank wouldn’t give them a loan for the $800,000 dream McMansion in the fashionable suburb.
I just think people need to be willing to make sacrifices and use their imagination to get into the property market rather than expecting the government to regulate it into submission for them. That’s what you’re doing by choosing high-paying work over lifestyle for a while to get some money behind you – that’s the smart way to go about it. Meanwhile some people want to have a comfortable 9-5 office job, rent a nice apartment in a fashionable suburb, buy a fancy new car every three years, go out to flash nightclubs drinking $40 cocktails every Friday and complain to all who’ll listen that they can’t save up enough for a deposit because houses are too expensive.
If we want to hassle the government to make housing more affordable, the things to go after are stamp duty and restrictive zoning regulations and council fees that prevent strata titling and subdivision – those are the kind of factors that make the housing market hard to get into and slow its growth.
Robbie says
Thanks for the reply – enjoyed reading your thoughts. You’re 100% correct about some young people not willing to make sacrifices. I’m generalising here, but a lot of us Gen Y have the entitlement mentality – we’ve grown up in an era without any major financial shocks (let’s face it – the GFC barely touched Aussie). We’ve had a pretty cushy life and expect everything to be on a platter. A bit of travel tends to put things in perspective.
That’s part of the problem, the other I think comes down to the education system – it’s incredible how many people I know don’t understand basic principles like compound interest! If schools even spent a few weeks on topics like this (e.g. budgeting – like how to not blow your savings from your FIFO job on a new Holden ute!) our demographic would be in a much better position.
At least with so many financial muppets in the game it’s not hard to outperform the average, but it doesn’t necessarily mean good news for the country as a whole.
Cheers
MC says
Hi John, I get what you are saying, foreign investment is good for the economy but only if its not targeted at the very heart of most peoples dream and that’s trying to own their own house. Our economy is only strong in the eyes of foreign investors, its not how most Australians feel otherwise we would be buying and building all these properties. The government needs to encourage foreign investment that produces more job’s and then we Australians may feel the economy is good.
Rod Northover says
It is simple folks…We are experiencing colonization in reverse….We had our turn and now it is theirs….That is not to say that I agree with it……What is the future effect if we look 7 generations ahead…….How will our Grand children benefit..etc….Why do we allow to happen what we are not allowed to do in their country ….Why do we allow our residential property values to be driven by external forces that the average Australian cannot compete with. ….I am not an educated man….I do have an active interest in the future of Australia…….I am also aware that we must learn to live in a world that no longer exists as we know it today
Tom says
Jon, your recent blog elicited some scary replies. Whatever happened to the Aussie tradition of a fair go for all? We’re ALL ‘Boat People’. Even the first arrivals came here from Africa, albeit by foot and possibly bark canoe. Whether we arrived by ships and planes or by flimsy Asian fishing vessels, none of us has any more RIGHT to the land than all the current would-be migrants, fleeing for their lives. Most of us are of fairly recent advent, but none of us has any real RIGHT to this wonderful land we call OURS – – – “For those who’ve come across the seas, We’ve boundless plains to share”. How about living up to our National Anthem!!!
My family were amongst Arthur’s post war £10 Pommes. We grew up being resented by those who at that time considered themselves the rightful owners of the country; but being of English origin, we were tolerated. Our fellow migrants from other parts of Europe were not so fortunate. Mostly political and racial refugees from war-torn countries, they appreciated the possibilities which this wonderful land offered to anybody who was prepared to have a go. Those “New Australians”, as they were derogatively called, were prepared to work hard, at several jobs, and save for their future. (“We’ve golden soil and WEALTH FOR TOIL”.) They did not immediately slot into the beer-swilling society they had come to join. But luckily they did introduce a wonderfully vibrant rejuvenating influence to Australia, although it took a long while for soccer to be accepted (lol). As the country developed, even more labour was required and the impoverished, Southern European economic refugees predominated in the shiploads of new migrants. (They played soccer too.) With each phase, the already established white community reluctantly came to accept and assimilate the new arrivals – grudgingly acknowledging their contributions to our traditional, English culinary environment of “Meat & 3 veg” – with all the nutrients boiled out of it. (Incidentally, if our POWs had eaten their food the Asian way rather than the English way, having salads, par-boiled veggies and sprouted seeds, many, many more would have come home alive!) However, since the Gold Rush days, non-Europeans and their ways have always been viewed with suspicion. They LOOKED different. In my day, students in the Colombo Plan were thus viewed, by those who had not made the effort to really get to know them. All around the world, we find the same fear of the misunderstood. At Uni, we had “Ying Tongs” – and “One Oriental gentleman was even seen to go sideways with it”, ie the “Splodge Plague” – taken from The Goons’ lampooning of Asians. The Goons were very popular with us rebellious Baby Boomer students of the day, but very few of us made the effort to get to know and befriend any Asian students, or at least would never acknowledge publicly any such friendship. But I must say that the prejudice was not all one-sided and there were societal differences, prejudices and divisions even amongst those students.
Despite the self-aggrandizing, “Multicultural” hyperbole of our pompous politicians, for 226 years, racial/religious intolerance has ALWAYS been alive and thriving in egalitarian Australia – We need an ‘US’ & a ‘THEM’; Haves & Have-nots; Protestant (British) & Catholic (Irish) etc, now European & African/Asian. Despite protestations to the contrary, it is and always has been an integral part of our society. Just scratch the surface a little and it flares up and festers like an infected open wound.
Jon, your blog made just such a scratch.
This tradition is unfortunate for those finding themselves feared by that ignorant and prejudiced established ‘us’. Willie Wag-a-Dagger asked us, via a wag in one of our school day English texts, “If you prick me, do I not bleed?” But we still find it difficult to acknowledge our shared humanity – until we eventually DO make the effort to get to know one of ‘them’.
So, as Aussie “Short Poppies”, we continue to resent anybody who actually asks for that fair go and is prepared to do the hard yakka, study hard and work hard, to avail themselves of what the “Lucky Country” has to offer. We prefer to go to the footy and have a pie and a beer, then head to the Club for a session on the Pokies, I had occasion to return to the Uni library one Saturday a few years ago. The only people there were Asian students – and we have the temerity to complain that they are taking the places of our children. In the Asian century, we will need to make more effort and strive for excellence, while still encouraging our young to have a healthy mind in a healthy body.
Feeling insecure and threatened, we keep our heads in the sand, oblivious of what is unavoidably going on in the real world. Technology is racing us into an amazing future, with untold possibilities and opportunities.
WAKE UP AUSTRALIA!!! Pull your finger out!!! Get real!!! Yes – we ALL bleed!!!
“Advance Australia Fair!!!
Fair dinkum Mates, give ’em a fair go!!!
freesyd says
Here we go again with this Chinese investor B.S. This is just more fodder for the biggets and a ploy to distract from the real issue. The real issue being that our property market is in a bubble caused by artificial low rates that the reserve bank can’t raise as a means of keeping the aussie dollar low so we can sell our resources cheap to the Chinese who make products for the Americans who in turn gives them worthless paper they call the US dollar. The low interest rates in Australia are causing the property bubble to inflate which will eventually cause inflation in other sectors of the economy (i.e food) and that’s when rates will rise and values will come down. Meanwhile, y’all still be worried about the boats.
Invest long term says
Don’t hate the other players, just get better at the game! Foreign buyers are not a problem, if you didn’t buy, how it it their fault. But the best thing is you can still buy now. Get in before it goes up more!! It always looks expensive today, but next year today’s prices look cheap. http://www.propertyinfo.info/chinesebuyers/next-chinese-property-buyers-australia/
If you can’t afford what you are looking at, look at other suburbs, Melbourne’s west is still affordable or look further away from the city. Everyone can afford something somewhere. If not learn to spend a little less and save a little more, with lenders mortgage insurance (LMI) you really don’t need much deposit. I would like a Ferrari but a Toyota works well too, same with property but with property it will appreciate and you can upgrade to something better later on. Do something positive instead of blaming others.
Except for the Aboriginals (and even they came from somewhere else all those thousands of years ago), we are all foreigners or descendants of foreigners, has that been bad for Australia? Growth is good for our economy, and increasing property price do their little bit.
Daniel says
FEAR! FEAR! FEAR! You’re all scared of the unknown.
Increase your own financial intelligence, build your own wealth, take responsibility for yourself and stop being afraid!!!
So there are 60 million Chinese investors ready to buy in Australia, that’s great, more money to make when we sell and develop to their needs.
First home buyers need to learn to think out side the square!!!!
Educate, learn and prosper, or stay in the dark scared!!!