Vested interests: Chinese investment making housing less affordable for Aussies

A couple of recent articles in the Fairfax press have revealed the extent of Chinese investment into Australia’s residential property market. According to Fairfax, “Close to one fifth of new properties in Sydney are being bought by wealthy Chinese investors and the flood of money is set to continue”.

According to investment bank Credit Suisse analysts Hasan Tevfik and Damien Boey “A generation of Australians are being priced out of the property market. Many face a life time of renting”.

Although foreigners are restricted from buying established homes in Australia, they are making a massive impact when it comes to buying new homes. Credit Suisse estimates that in the last seven years, wealthy Chinese investors have purchased $24 billion of Australia housing. They project that another $44 billion will be spent in the next seven years.

And according to Fairfax, “The figures presented by Credit Suisse might even understate the true picture of Chinese investment in Australian property.”

“That’s because there are alternative means to do so which fall outside of readily trackable measures of this trend, such as when a Chinese national provides the money for an Australian-based family member, friend or solicitor to purchase a property.”

Another Fairfax article quotes The Economist magazine stating that house prices in Australia are about 56% overvalued — the most overvalued of anywhere in the world. Furthermore, there is no specific tax on foreign buyers of Australian homes.

Astute observers will point to a number of reasons as to why house prices are so high in Australia. Foreigners being allowed to buy new homes is one factor. So is Australia’s ridiculously high immigration intake. So is the excessive bureaucratic green tape, red tape, and fees which drive up land prices. Even the government’s First Homebuyer cash grants are working to drive up prices. So are the excessive stamp duty fees Australians have to pay on real estate purchases. So is the point that state governments have not been releasing enough land for new housing. So is the point that the domination of retail markets by big corporations in Australia, means that Australians are reluctant to invest their savings in farms or businesses, and so a lot of savings go into the share and property markets instead. Inevitably, when demand is greater than supply, prices soar.

But there’s also a lot of speculative buying, based on the belief that house prices will continue to increase. This has created quite a bubble. But will that bubble burst? There are different views, but economist Harry Dent, the man who predicted the global financial crisis, told Channel Seven recently that “Melbourne, Sydney, Brisbane and Perth are on the verge of the most violent property collapse since the great depression”.

So who benefits out of this massive foreign buying of new Australian homes? Well, another Fairfax article quotes a Credit Suisse report stating that “Property developers, building material companies, property websites and banks will benefit from further Chinese residential investment in Australia”.

Our inflated property prices create winners and losers, but there can be little doubt that it is further widening the gap between rich and poor in Australia. It’s all very well if one already owns property, but what about young Australian parents trying to raise the next generation of Australian children? Even with two parents working, many families find it hard to afford to buy a house. Home ownership may be just a dream for many, and some may have to settle for being permanent renters.

And when Australians are having to put so much of their money into housing or to pay off expensive mortgages, it means that they have less money to spend on other goods and services. Which means that other areas of the economy suffer.

The well-known economist Saul Eslake made a submission to the federal inquiry into Affordable Housing, which he titled “Australian housing policy: 50 years of failure”. Eslake went on to conclude in his report that “Politics — more than any other single factor means that Australians are likely to have to live with a dysfunctional housing system for a long time yet to come.”

All of the contributing factors making housing so expensive in Australia are rectifiable. Australians can have cheaper housing, but only if the political will is there. Both Coalition and Labor governments have simply been pandering to powerful business interests. A great many countries do not allow non-citizens to purchase residential property, either new or established homes, and Australia should also apply this standard.

References:
Who wins from China’s property splurge?”, WA Today, 5 March 2014 (Madeleine Heffernan)
Locals priced out by $24b Chinese property splurge”, WA Today, 5 March 2014 (Max Mason)
Australia to suffer ‘biggest property collapse since Great Depression’”, 7 News, 7 February 2014
Aussie home prices world’s most-overpriced: survey”, The Sydney Morning Herald, 4 March 2011 (Simon Johanson)
Why we should tax foreign purchases of Aussie homes”, Herald Sun, 12 March 2014 (Jessica Irvine)
Australian housing still among most expensive in the world”, The Sydney Morning Herald, 21 January 2013 (Leith van Onselen)

Comments

  1. I want to know who is running this country the lawers or the politicians what the hell is going on?. People from India coming here because it suits them finantualy.What’s next? We have lost control of our country, this is not a democracy we voted for this government and now we are hamstrung by litigation.
    this should have never be allowed. Scott Morrison is a legend that poor man, God help him and his honourable task.
    Eddy.

  2. Guided By Voices says:

    Already happening in Singapore. They’re flocking in like locusts and throwing their weights around.
    An absolutely tiny and warm little state island as she is, it’s even more suffocating. I hope those decision makers in Oz wise up before irreversible damages being done.

  3. Michael R says:

    Speaking of Fairfax, I believe they did a deal with China to create a Chinese equivalent of domain.com.au i.e. a website for the Chinese to buy properties here. So when you ask: who benefits out of this buying spree? Fairfax now has a financial interest in it. Presumably that’s why their banner is now “Independent. Always”. Yeah, sure.

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