There’s still no good data on foreign buying, and the foreign investment review board has decided to lecture the community rather than do something about it. The current government inquiry seems as useless as every other government inquiry, and this issue isn’t going away.
For a few years I’ve been highlighting the major role foreign buyers, particularly Chinese buyers, are having on the Australian property market. And I’ve also been highlighting what I think is a political ticking time-bomb.
That is, Chinese buyers are helping to drive prices higher, but that always alarms the ‘think-of-the-children’ brigade, worried about first home buyers being priced out of the market.
Combine that with an absence of any useful data, and anecdotal reports flying here there and everywhere about people rorting the system – non-residents buying existing properties for example, and you have a classic us vs. them mentality.
Rich Chinese buyers vs. poor local kids. I personally don’t think that’s the reality, but it’s easy for someone to paint the picture. It’s a ticking time bomb.
And the fuse was lit a few months ago, as the government launched a review into foreign property purchases.
Like most government reviews, it hasn’t turned up much of use, but there were some particularly useless contributions over the past week – and from agencies we hope should know better.
The first was from the Foreign Investment Review Board’s chairman Brian Wilson. He told the inquiry, that Chinese Australians are often unfairly targeted by people concerned that rules are being broken.
In his words:
Very often we might get a call that says a Chinese person has bought this house, how were they able to do so. A lot of the time when we investigate their background, we find they are a citizen, they live here.
We don’t often have concerns about people of Greek or Italian extraction buying properties because they are not so easily identifiable at auctions.
Ok, that’s great Brian, thanks for the sermon. The whole drama is caused by our nervousness about Asian-looking people buying properties. If you’ve got concerns about unregulated Chinese buying, he’s not saying you’re racist, but some of your best friends are racist.
And it completely ignores context. We’ve got newspapers full of stories about offshore Chinese buyers pumping demand. John McGrath reckons he’s never seen anything like it. We’ve got Chinese language property search portals on the internet marketing straight to the Chinese, and concierge services driving wealthy buyers all over Sydney’s north shore.
Last time I looked, nobody was catering directly to the Greek market.
And so this is the context that’s got people wondering about Chinese buyers at auctions. It’s not if they’re Chinese per se, it’s if they’re part of a poorly regulated wave of Chinese cash.
It’s got nothing to do with what they look like.
And it’s a cheap shot when your organisation is part of the reason why there’s so much suspicion floating around. It’s because there isn’t enough data on what’s actually going on. And with government agencies like FIRB dropping the ball, we’ve had to rely on private banks to step into the breach.
And that data, like the NAB survey of property insiders, indeed shows there’s been a spike in Chinese buying, and it’s much bigger than what the FIRB are telling us. Take this chart here:
Or here:
And it seems like shameless pass-the-buck when it’s your organisation’s checks and processes that are being called into question. There are serious doubts about whether FIRB data is getting anywhere near the extent of Chinese buying, or actually preventing non-nationals from buying existing properties.
It’s all looking a bit leaky. And that’s what this inquiry should be trying to sort out. Have we got the system we want, and if so, is the system working?
Don’t lecture us about racial bias, when it’s your organisation that’s created the whole mess…
The other piece of wet-lettuce analysis came out of the RBA. They reckon foreign investors are not crowding out first home buyers.
They say that foreign investment in residential housing is at most 5 to 10 per cent of market turnover, and last year the government approved $17 billion in property investment from overseas, with most of the money funding the purchase and construction of new homes.
They then say that since foreign investors’ share of the market has remained fairly steady over the past two decades, overseas buyers were not the main reason for price rises over the period.
Ok. But I thought the whole point of this review is was because no body believed the FIRB data. Or was I just hoping.
And you can’t argue that since FHBs are looking for affordable, entry-level homes, and cashed-up Chinese buyers are looking for premium homes in premium suburbs, one’s not crowding out the other.
It’s not like the car market. In that case, demand for Mercedes has no influence on demand for Honda Civics. If demand for one goes up, Mercedes or Honda simply produces more of those cars.
But that’s not the case with housing. You can talk about different markets, premium vs entry level, but really it’s all one market. If someone comes in and buys a premium property, it stops people in medium level housing moving up, which stops people in entry level housing moving up, which stops entry level homes form opening up.
It’s all connected.
The RBA got someway towards acknowledging this when they said that there were
“rigidities” in the supply of housing that meant there were not enough new homes being built to meet demand.
And again, more than foreign buying, this is what’s pushing up prices.
Looks like this inquiry’s going nowhere. Prices will keep rising, Chinese buyers will keep coming (legally or not, but we’ll never now), and people will keep wondering if wealthy Chinese buyers are the reason their kids can’t afford a home.
We haven’t seen the last of this.
LPJ says
It amuses me that people are worried about “foreign” buyers and “rich” people gentrifying areas, so now the poor locals cant afford to live there.
I don’t see the vendors complaining. Most would happily sell to Al Queda if they offered the most money.
Kash says
I’m confused with this article… Are you saying Chinese is buying too much or the government should have better measurement/ control over this FIRB thing, or both?
Rob Smith says
Hi Jon,
I appreciate your articles.
In SA we are finding that the Chinese buyers are at the top end of the market, not at the lower end where one would find the first home buyer.
My children are FHB’s and they are not looking at the $1m+ homes being sought from my real estate agent friends.
The issue of “where did they get the money for that?” is certainly one the Australian government should be looking into, and I am concerned about our farms, golf courses and accommodation facilities that are being snapped up by overseas ownership.
Some of us went to fight wars to stop the infiltration of foreign powers but it seems we are only too happy to sell the place if the price is right?!?
In China, foreign ownership is limited to less than 50% in a company trading there.
We should have similar protection here.
Regards
Rob.
Ken says
Hi Rob, Firstly, China has never threatened Australia. In both world wars, we were at was with countries that we now do a lot of trading with. You, or anyone else know who these countries are. Granted, we get a lot of crap people coming into this country with out any contribution what so ever. If peaceful people like Chinese can afford to buy and pay their way, they should be welcomed with open arms. Not spoken about like they are some kind of second type human race. It pisses me off when descendants of previous hostile countries complain about other countries like China. If anyone likes to Google Chinese Anzacs, they may get a better idea and understanding of these placid people who still do business with the shake of the hand. Do we? Cheers, Ken.
Don't Prop Up the Ponzi says
Ken, it’s not that the Chinese buyers have done anything wrong or that they’re horrible people or anything. I’m sure most, if not all of them are very nice and decent people – it’s just that they are able to buy Australian real estate, push up prices and outbid Australians who simply want to be able to buy a home. We are not blaming the Chinese investors for wanting to get their money out of the hands of the Chinese govt and park it in Australian real estate – it is our government who is fully responsible for allowing this practice.
GARRY says
Definitely not racist but definitely not in favour of Chinese buying in Australia and inflating the house prices. I am 55 years old, single parent, working for 20 years now, renting and desperately trying to buy a little home and I can’t . Not to mention that my children won’t be able to do it either. So what, one may say? Let current home owners and investors make as much money as they can. Why do we need to care about our children and people like me?
MT says
Not sure what all the fuss is about. Given the number of seminars I’ve seen being promoted, I’m assuming there are many “rich” Australian property investors who have snapped up US properties. So I guess now all of America is crying foul over an influx of Aussies illegally taking over their land, driving up prices and squeezing out their children. And the worst part is, these Aussies aren’t intending to migrate to the US and contribute to that society. All they plan on doing is charging exorbitant rents to the locals in order to make the investment cash flow positive! So what you’re saying is it’s ok for us to invest money overseas but we don’t want people investing in Australia. And when they do invest they must be doing so illegally. Nah, you’re not racist – just xenophobic.
GARRY says
NOT EVERYTHING IS ABOUT INVESTORS AND INVESTING; NOT EVERYBODY IS INVESTOR. SOME PEOPLE ARE JUST TRYING TO SURVIVE…….THEY ARE FAR AWAY FROM USA INVESTING SCENE. I HOPE HARRY DENT IS RIGHT.
MT says
Garry, I can’t comment on your situation but I can sympathize if you’re finding it tough. However, this forum is all about investors and investing.
https://knowledgesource.com.au/bleeding-hearts-target-investors/
Nothing wrong with renting. Some would suggest you’re better off renting and buy an investment property instead of owner-occupied.
Don't Prop Up the Ponzi says
Garry, you’re quite right.
And MT, are you trying to say that Australian investors are pushing up US prices when they buy American real estate? US real estate is extremely cheap compared with Australian prices, and there is no shortage of affordable housing in America.
In Australia, there is a definite shortage of affordable housing. In fact, according to Demographia there is no affordable or even moderately affordable housing market in Australia.
But in any case, we’re talking about the Chinese pushing up prices here. Try buying a property in China – not only are you not allowed, even the Chinese are restricted in the amount of properties they can buy. Yet here they can buy as many properties as they want. Other nationalities can also buy here but the Chinese are the vast majority, and they are ones impacting on already high prices.
MT says
DPUP, it’s all relative. You have to remember why there are so many “affordable” houses in the US. They were all abandoned because people couldn’t afford to pay their loans. Just because a property is US$30k you think that’s affordable – well it’s not for some.
Ok, so back to the Chinese then. Let’s put this into context. Let’s not forget that the vast majority of Chinese still live in poverty and don’t have the available funds to be buying any property let along one in Australia. The growing middle class would be no different to any middle class around the world; sure they might invest but would they really want to invest in overseas property. I would suggest that those Chinese buying here are extremely wealthy. These guys are not looking to invest in Australian property to make money – they are buying property to comply with our immigration requirements. They have made their money from businesses back in China and they’re not interested in make some extra coin buying overpriced Australian property that they can’t even negatively gear. They are not going to snap up every available property. They will just get one so they can satisfy the financial requirements for immigration. That’s why it’s all top-end properties.
The way I see it, if already successful people (Chinese or not) want to come to Australia, they are capable of financially supporting themselves, are willing to spend money to stimulate the economy, set up businesses here and employ people then it can’t be a bad thing.
Charlie says
GARRY, it is the negative gearing – Australian NZ unique tax avoidance scheme that prices out home buyers. negative gearing is designed to subside the rich with poor’s money.
GARRY says
not only negative gearing. foreign investors as well. (you said it yourself…if Aussies are doing it in USA…)but thank you trying.
Don't Prop Up the Ponzi says
It’s a combination of several factors, all in place to keep prices high – negative gearing, foreign investment (with the FIRB doing FA), very high immigration rates, the relaxed laws allowing SMSFs to leverage into property and the low interest rates.
No government will intentionally allow the bubble to burst on their watch which would send this country into a deep recession, so the bigger the bubble grows, the more resources are allocated to keeping it growing even bigger.
Kat D says
Since mid-20th century China has been run with an iron fist to promote emigration of its citizens. Western capitalists were instrumental in creating this situation. Think of the global chain of ‘Chinatown’ that exists in every capital city of each state that embraces free enterprise. This isn’t just a fast food concept. When China outgrows its snakeskin of plutocratic quasi-socialism we will feel the force of the Empire that wishes to dominate and expand westward and South towards ‘Australasia’. Just consider where most of your household items, tools and building materials are being manufactured before you buy, build or renovate.
Mickey says
They also supplied to the rest of the world not just us. house prices in australia is only going to go one way and thats up because of lack of supply, so is density i am starting to see 3 stories houses like asia popping up in inner city before you know it’ll grow to middle ring..
From the Outside In says
Please allow me to offer an view that is more removed from the situation.
I’m an Australian citizen who has lived in S.E. Asia for the last 5.5 years & professionally, assist Australian developers to engage their NEW apartment projects & house/land packages to potential Asian investors up here..
Jon is mostly accurate when he places the blame for the hysteria of Chinese investors snapping up Australian residential properties on FIRB but there is also another “culprit” at work and that’s the residential real estate sales industry.
If you’ve listed a property for sale in Australia in the last 2 years & had a flurry of agents through your door to provide you an appraisal of its market value, somewhere in their presentation kit they will emphasis their ability to promote your property via a multitude of Asian online property portals that will exposure your home to “Chinese buyers” who apparently snapping up everything & pay over the top prices to boot!
Now the questions that needs to be asked & investigated by FIRB is;
1. Why are real estate agents promoting residential properties to potential foreign buyers overseas when the FIRB guidelines on foreign ownership restrictions on the class of property are clearly stated for everyone to adhere to?
2. Why would real estate agents be spending thousands upon thousands of vendor paid advertising dollars marketing to buyers who are not legally allowed to own such properties?
Maybe the problem is that FIRB is of the belief that the residential real estate industry is honest & trustworthy enough to self regulate & enforcement of FIRB guidelines…yeah, right!
Adding to the speculation on Chinese buyers is the ignorance of Australians themselves.
The term “Chinese buyers” is somewhat of a misnomer as collectively, the ethnic Chinese populations of Singapore, Malaysia & Indonesia (key markets for Australian property investment) numbers around 30 million & up until 2011-2012, bought more Australian property than mainland Chinese.
There is nothing wrong in the present FIRB regulations that are aimed increasing the supply of domestic housing which bolsters the industries that manufacture it but its the lax regime of regulation of those rules that is the main contributor to the issue.
John Chegwyn says
It’s the arithmetic. 23 million Australians.
100 million China “Outbound” forecast by 2020. (Marina Bay Sands)
You are just not on a level playing field.
And on DDay all of what our guys fought for to protect the Australian fabric, culture, heritage is in the hands of an increasingly incompetent Australian “Government”.
“Old fashioned” Government, which has no idea of what is really happening in the international market place.
Australians have no “National Plan”.
Governments are failing to provide vision, leadership, and an ability to manage. No longer honest.
Only NSW ICAC effectively pursuing the dishonesty. As the Court System no longer “protects”
All foreign investment should be on 99 year lease, same as Canberra, and all China buying should be needing to be channeled into new construction.
A “level playing field” please. How do we buy land in China? You are being conned
Foreign investment welcome, but on a “controlled” basis.
If you think it’s “out of control” now, you haven’t seen anything yet.
What we are experiencing is a complete breakdown in Government and its ability to fairly and reasonably protect its people.
Australia’s youth know. There is a total lack of leadership.
A “New fashioned” system, with a competence to plan, manage and control, is required
Charlie says
I don’t think migrants is a major issue for affordable housing. America, Canada & some EU countries have much much more migrants, but they do have affordable housing. I have done some research, if one Chinese moved to Australia, there are at least 20 Chinese that moved to Canada, 15 moved to US, and those north America bound Chinese are much richer than those who moved to Australia. If we want affordable housing in Australia, the only solution is to change negative gearing. Unfortunately the government people all have investment houses & they fork out $6 billions a year to negative gearing scheme. They are now attacking poor people by cutting health, education, pension, + GP tax etc. The debt levy will push the housing price higher as it forces rich people to buy more investment house & push the housing more unaffordable. I think Australia will be a stupid country as young talents can’t afford a simple home & have to move to overseas.
Don't Prop Up the Ponzi says
Charlie, migration is an issue here. America and Canada do not have housing bubbles except for Vancouver which has been greatly impacted by Chinese buyers, as well as Toronto to a lesser extent.
But in Australia, firstly we have the highest rate of immigration in the western world, We have a shortage of affordable properties and the response to the huge demand on housing here is to build tiny dogboxes and call them “affordable housing” when they are totally unsuited to families. Or the other response is to build 40 and 50 kms away where there is a lack of infrastructure and lack of public transport.
The US has 15 times the population of Australia and they are spread out in a multitude of cities across the country. Our population is concentrated in a few major cities, and particularly in two major cities. The rest of Australia is empty.
But I agree with you about negative gearing. As I said earlier, there are several causes of our housing bubble. And let’s not kid ourselves – our government has no interest in making housing affordable – none at all. They would throw Australia under a bus before they let prices fall.
Carl says
Very interesting responses and in regard to Garry’s I am just wondering what price he would suggest is affordable. Obviously everyone’s perspective and income level is different but how much constitutes an “affordable” home. I am also thinking that the house he is able to rent is because someone is negative gearing which means they are actually making a loss on their investment ( hardly an “investment”) in the “hope” of making a capital gain in the future which is not guaranteed.
Ken. says
Garry, If you mention and object to Chinese or any other Nationality by name, you are racist.
The Ram says
I think we need a FOT (Foreign Ownership Tax). Australia is already by the last estimates owned to the tune of 90% in foreign ownership.
It’s a national shame and disgrace,
In 20 years time we wont be worrying about where to live, but where to find food.
Our farms are going like hotcakes, in the best agricultural areas. Woolies and Coles, just priced our generational farmers out of the game, so much so, that when some foreign buyer (and it’s not always the Chinese) comes a knocking, offering them four times what their land is worth, with their lifestyles and bank balances on skid row, they are only to happy to sell out! Who wouldn’t take a bailout under such harsh circumstances.
Our minerals are being ripped and sold back to us at premium. Why cant we own Hyundai and Toyota, it’s our minerals that make them what they are?
We are the lucky country!
Lets get ourselves in to gear, change our educational system, teach us how to manage and protect our resources, become financially literate, learn how to grow food in suburbia and keep our jobs in Australia. Teach us how to vote for leaders that can make the necessary and hard changes required!
In the history of mankind, the world has seen no greater change, The age of Industrialism and Capitalism are phasing out, Stop teaching Australians to be good taxpayers, but awesome entrepreneurs and business leaders, We need to change or the changes will be dictated to us.
As Australians if we have everything we need and are not living the life of our dreams, then whose dreams are we making happen?
Is it not better that as a nation we are made richer through change and the right education. Surely a larger slice of the global pie, means increased tax revenues, and a population of people happy to pay taxes, because they are comfortable, secure and have phenomenal standards of living??? doesn’t it?
As Australians we have to understand we have everything, everybody wants it, we just need to start changing / playing the game!
I make a lot of money courtesy of the Chinese buyers who keep pumping money into our real estate economy, but even still it just becomes a game of cat and mouse, of chasing the elusive dream, You make good to great money, but the goalposts keep moving at a faster pace away from you, that Million dollar Palace just becomes 3 Million, so to speak in relative terms.
I think rather than taking the Chinese’s money, we should be trying to attract their business accumen, their traditional diets that keep them living way above our average mortality age (without medical intervention), their philosophies – and I am not talking about Communism here, just their general way of life and beliefs.
.
I can assure you readers, that I am an Australian, but I believe that a civilization that has roots and culture that at a minimum, is 10 times greater in the making than that of our own, even if through experience alone, has a lot to teach us!, I am all for attracting Chinese people to our shores that can offer Australia more.
My belief is that is It’s not what our country can do for them, but what they can do for our country, and that is the key participating in the Australian economy or population. There is a lot of Chines that want to come and make this a better country and leave their homelands for improved opportunity, security and living standards.
If the Chinese want to poach our real estate and prime agricultural and mining lands, well lets go back and poach their top engineers and business people and start manufacturing things in Australia, that we are currently not doing (to keep the unions happy, they can’t complain about job losses if there isn’t a certain industry in the first place!).
If Australia were a business looking for a competitive edge, we would source the right talent and create our own monopoly, not prostitute ourselves at the expense of our own further generations. Failing that, at least joint venture with them and share in the profits, not give them away, at our future peril.
The Ram.