A leading investment bank is tipping that Chinese demand for Aussie property will double by 2020. It’s already one of the key drivers of the market, fuelling exceptional price growth in some areas, but how do we make sure it’s a win-win for everyone?
Investment giant Credit Suisse has had a go at estimating the scale of Chinese demand for Aussie property. If you’re looking for evidence of price pressure it’s pure porn, and here’s the money shot:
We forecast Chinese buying power will increase as the economy develops and the population becomes wealthier. They purchased $24bn of Australian housing over the past seven years; we forecast they will purchase $44bn over the next seven, to 2020.
Yep. You heard right. Chinese demand is going to double.
It’s already one of the hottest talking points – the BBQ stopper – in Aussie property. It’s already one of the key driving forces behind the property come back (though it’s important to remember it’s not the only one!). And Chinese buyers are already becoming the scapegoat and whipping boy for first-home buyers cruelly priced out of the market.
But you ain’t seen nothing yet.
As I’ve noted a few times, part of the problem is there’s a real lack of quality data on this issue, which together with sub-tones of racism and fanfare journalism is a dangerous cocktail.
So Credit Suisse have done their best to pull all the threads together. But as they say, there’s a bit of guesswork involved – and their figures probably underestimate things.
Australian Bureau of Statistics! This is your Lone Ranger moment.
But cutting it all together, they estimate that the Chinese are currently purchasing more than $5bn of Australian residential property a year.
To put that in perspective, that’s 12% of new housing supply (we don’t have data on existing supply!). That’s some serious influence. Almost one in eight new homes are being sold to the Chinese!
As we know (or as the anecdotes and hear-say being passed off as facts in the media have told us) Chinese buying is concentrated in Sydney and Melbourne. The Chinese account for 18% of new supply in Sydney and 14% in Melbourne (check out the chart).
It’s bigger than I expected in NSW (18% – almost one in 5 is huge!), but it’s less than I thought in Queensland. Queensland’s on par with SA… around 7%. Does that sound right? It’s kind of surprising, given we’ve heard a lot in recent times about the natural affinity the Chinese have with Queensland.
I suspect it’s got to be understating things somewhat – though remember this doesn’t include established housing so that might be part of the story.
Credit Suisse then try put a number on future demand. They estimate that there are currently 1.1 million Chinese that could easily afford to buy an apartment in Sydney. They expect this number to increase by 30% by 2020.
With the Chinese growing wealthier and wealthier, and as the routes to Aussie property (Chinese language websites, special concierge services) become more and more established, this opens the way for Chinese demand to double in the next 7 years.
And CS expect we will sell another $44bn of property to the Chinese by 2020.
It’s enough to give you the impression that China is the biggest story in Aussie property right now. And maybe it is.
But that means that China will be the fall-guy to anything that’s wrong with Aussie property – from affordability to housing density and urban sprawl.
And you might remember a few weeks ago I was writing about the Significant Investor Visa – visas granted to foreigners as long as they promised to park their money here.
Recent figures showed that 65 SIVs were granted in 2013 – 59 of which were to Chinese citizens.
That’s over 90%, and it starts to look a little strange. Are the Chinese the only people who want to take advantage of that visa arrangement? Or are we actively pushing for Chinese citizens in particular?
And without an answer to that question, it’s easy to make that case that government policy is actively targeting the Chinese and “selling out our youth to the rich Chinese” as I heard one commentator put it.
The fungus of intolerance and hatred grows in the dark corners of ignorance and insufficient data.
If the surging Chinese demand can be channelled into new supply (rather than existing dwellings), this can only be a positive.
And if we can demonstrate this clearly (and a fact like “18% of new dwellings in Sydney are thanks to the Chinese” is taking us in the right direction) then we can make the case that the Chinese investment is helping to ease the demand supply imbalance and might actually make housing more affordable.
But to do this properly, we need better data. We need a clearer picture of what’s going on.
Because without it, the real danger is the spectre of “foreigners buying all our homes” becomes an election issue and we get some poorly thought out, poorly informed knee-jerk policy response that shuts the whole show down.
We’ve seen it before. We’ll see it again.