Stephen Nichols, property editor of the Sydney Morning Herald, has a new video that poses some sticky questions for the Australian property market.
MB has noted on a number of occasions that the media and real estate industry have an uncomfortably close relationship that seems to have little to do with “reporting”. View the above video and tell me where there is any endeavour at balance.
That point aside, Nichol’s unbridled, neh, unparalleled enthusiasm for all things going up does suggest a few questions about whether or not foreign property investment in Australia is appropriate.
Many Australians will conclude immediately that it is not. Especially since property is so unaffordable for many locals. I have some sympathy with the argument because I don’t see residential property as an asset market. Rather it is a consumer good so the cheaper the better.
Having said that, much of the world does see property as a store of value and in that context I have no problem with such markets being open to trade back and forth between different nationals. Moreover, if the sixty folks mentioned in the video as buying Australian citizenship for $5 million represent Steven Nichols’s tsunami of interest then it is clearly no more than a ripple dissipating on the outer bank at Bondi.
How many of our northern neighbours have $5 million to spend on Australian property and what part of the market would they be playing in anyway? If our wealthy want to trade assets with other wealthy nationals who cares? According to FIRB the last few years have seen $20 billion in foreign investment into Australian real estate. RP Data reckons the same few years average a total transaction amount of $200 billion. 10% of market is fairly substantial. But how much is going into new properties? We don’t know bu my guess would be the majority.
How about pragmatic questions of whether foreign investment in residential property represents an added risk to financial stability? During the GFC there was a run on contracts for ‘off-the-plan’ properties held offshore. So much so that the banks tightened credit criteria for foreign investor loans in the years afterwards. So that’s a risk.
There is also the issues surrounding why the Australian government dropped its reporting constraints on foreign buyers of Australian property in the GFC period only to reinstate it later. While the data from FIRB is notoriously vague for residential dwelling purchases such action hardly breathes transparency into the market, or trust among Australians generally. More data on the question would be and should be welcome.
At the same time, however, foreign dollars already in the market seem more likely to be a stabilising force than otherwise. In the event that Australia faces an asset devaluation scenario, the dollar will likely depreciate very fast, as it did in the GFC. Although some foreign investors might run, most will be trapped by the capital losses on the dollar and will have to sit it out. Thus they seem a pretty firm pair of hands in such circumstances.
The same cannot be said of course for those “Asian people” doing the buying. If they are not buying to flee imminent persecution in some tyranny then I’m buggered if I know why they’d be rushing in now. The China boom has clearly peaked. The mining boom is peaking. The Australian dollar is grinding lower and the risk is surely that as the terms of trade correct then it will fall much further and stay down as Australia’s hollowed out economy fails to rebound.
At the end of the day, I can’t see why foreign buyers of Australian property is really an issue. The value of the property market comes down to the same questions of macroeconomic settings, taxes, planning decisions, credit availability and unconscionable media spruiking no matter who is doing the buying.
P.S. I realise that this will be a “hot button” issue for many readers but please keep your comments on the up and up.
