Australians need to look at the bigger picture of Chinese investment into the Australian real estate sector, writes AustCham Beijing Chairman Brendan Mason.
“The eye sees only what the mind is prepared to comprehend,”Robertson Davies
Christmas in Australia: it’s a time to relax and catch up with friends and family. As is the same for all expats based here in China, when we return back to our home countries, we are inevitably quizzed on what our life is like here. This year, a new topic of conversation came up at a barbecue. What did I, an Australian living in China, think of the fact that the Chinese were flooding the Australian real estate market, buying up properties for vastly inflated sums, effectively pricing locals out of the markets? How, I was asked, were our children ever going to be able to buy their own places to live?
Indeed, while kicking back on the beach, I came across an article in the Australian Financial Review by Matthew Cranston and Rebecca Thistleton that went deep to the heart of this matter. ‘The Great Chinese Takeaway’, provides various anecdotal examples to build a case that the level of Chinese investment in Australian private dwellings is out of control, and that the government needs to take measures to stem it before it gets out of hand. A North Sydney real estate agent reports “When I have [non-Chinese] at auctions on the weekend, there is an undercurrent of frustration among them. They are sick of going to auctions and being outbid by Chinese buyers for paying above the odds or at least above where they see the value to be.”
On closer scrutiny, the facts do not necessarily bear out the dire warnings.
Following changes to regulations in 2011, non-residents are now only allowed to purchase new dwellings. In 2013, there were just 4,499 approvals for such purchase. This includes people of all nationalities, not just the Chinese. Established dwellings may be purchased by temporary residents, with a limit of one property for use while they are living here, which must be sold on departure. In 2013 a total of 5,091 temporary residents, again including purchasers from all over the world, bought established dwellings. Combining all foreign purchases of domestic property, it adds up to just 2 or 3 percent of total housing turnover, hardly a phenomenon of epic proportions.
Indeed, according to a March report in the Sydney Morning Herald, the most recent Foreign
Investment Review Board data points to the fact that the perception of a Chinese property
splurge may well have been overblown, with overall foreign investment in Australia’s residential property falling by 18 percent in the past two years. A Reuters’ report in April shows
Chinese investors were responsible for just under 12 percent of the total invested in 2013.
So why the sense of panic and why specifically have the Chinese been seen as the
cause of alarm? The report that has been used as the basis for so many of the scary stories comes from Credit Suisse, who provide the information that in 2013, Chinese buyers invested $5.2bn in the Australian domestic housing market. However, strangely enough, this total amount includes ‘new settlers’ that is people from China who are actually permanent residents of Australia.
Ultimately, selective reporting of data seems to be resulting in negative perceptions of China and the Chinese. So now, a Chinese person who moves in next door is as likely to be seen as a competitor for the spoils of the housing market as they are just any old neighbour.
The federal Government has recently announced it will be holding a parliamentary enquiry into foreign investment in the Australian real estate market. Given that the original mandate for allowing foreign investment was to ensure that the supply of dwellings in Australia was increased, it will be very interesting to follow the progress of this enquiry.
In the meantime, we have to acknowledge that other reasons besides the inflow of Chinese money are just as likely to have contributed to rising housing prices: for example, the easing of
restrictions on how self-managed super funds and a familiarity with the asset class are used has meant that many ‘mums and dads’ are now parking their money in housing rather than leaving it in equities.
Indeed, every single one of those people who complained to me at Christmas time about the rising cost of housing actually own multiple properties themselves, many of them taking advantage of historically low interest rates and the continuing opportunity to negatively gear their property investments. This anecdotal observation of my own is supported by facts – RP Data for December 2013 shows that in the 2010/2011-tax year, nearly 20 percent of people who reported taxable income owned an investment property. More recently, within Australia, investment loans accounted for 38.9 percent of housing finance commitments in October 2013, not far off record levels. These massive increases in demand drive property values up. Only a small proportion is derived from Chinese-based demand.
Sometimes, it seems easier to base fears on poor reporting and prejudice rather than to seek the facts and to recognise the impact of ones own actions. Negative sentiment is developed from many sources. We need to be careful that our perception of Chinese investment into Australia is recognised for its positive contributions to the economy like the labour market as well as the pricing effect on scarce resources like property. *
To learn more about AustCham Beijing and for a full listing of upcoming Chamber events, visit: www.austcham.org
