Chinese buying “unprecedented” Sydney property

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From Bloomie:

Home prices in Sydney could rise by as much as 10 per cent over the next 12 months, driven in part by unprecedented levels of Chinese demand, according to McGrath Estate Agents.

As much as 80 per cent of homes in parts of Sydney are being sold to Chinese buyers, John McGrath, chief executive officer of the company that recorded $7 billion of property sales in the year to June 30, said in an interview in Sydney. Record-low interest rates and the biggest influx of investors in almost a decade are also fuelling prices.

“The Chinese market is extremely strong, the strongest I’ve seen a new entrant into the market,” McGrath said. “Record low interest rates, the ability to fix such rates for a long period of time is very attractive.”

…Chinese are buying in Australia on expectations of capital growth, to provide a home for their children attending university in the country or simply to live outside China, McGrath said. At a recent property auction in Eastwood, all 38 of the registered bidders were Asian, McGrath said. The three-bedroom house with a double lock-up garage and two sun rooms opening on to the back yard, sold for $2.39 million, more than $1 million over the reserve price, after 62 bids by eight hopeful buyers, according to the agent.

“I haven’t seen a trend like this in 30 years, in terms of a brand new demographic group entering the Australian market with so much impact as I’ve seen in the last 12 months,” McGrath said in a separate interview with Bloomberg Television.

While Sydney has been a “stellar performer” over the past six months, the city’s house price growth rate is unsustainable, he said.

“There are long-term growth prospects but the current growth rates probably need to slow at some point soon,” McGrath, who forecasts prices could rise by between five and 10 per cent in Sydney in the next year, told Bloomberg Television.

I will remind everyone at this point of two things. First, it was Chinese money (among others) that played a major role in blowing up US housing via purchases of Treasury and GSE bonds. This held down interest rates and stoked a local investor blowoff. So think carefully before you conclude it is a good idea to have a wave of foreign capital distort your asset markets.

Likewise, if you think it’s bad idea, take a deep breath and keep your comments civil.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. Last time the Asia went on a spending spree in Australia it caused a recession that Japan still hasn’t climbed out of.

    Will the Chinese repeat history?

    • Bubbley,

      How did a spending spree in Australia cause the recession in Japan???

      Lets get one thing straight. The recession in Japan since the early 1990s was caused by the Japanese, no one else. Japan blew up its domestic consumption in the late 80s early 90s, so it could allow its people and businesses to take advantage of saving from its exports to the west during two decades of debt based excessive consumption by the west. These savings are why the Japanese Government have been able to laugh in the face of capital markets and why shorting the JGB is known as the widow maker. And its the same reason why a Japanese Government debt of 240% of GDP, or what ever it has now grown to by now, is not really the huge unmanageable problem for Japan that some people make it out to be.

      • Yes dear, they did.

        And one of the things they got themselves into debt with was buying Gold coast property and golf courses.

      • Bubbley,

        So the Japanese lost a little bit of money. So what? How did this cause the recession in Japan???

        “Chinese are buying in Australia on expectations of capital growth, to provide a home for their children attending university in the country or simply to live outside China” comment by McGrath.

        should read

        “to provide a home for their children attending university in the country or simply to live outside China”.

        The Chinese are not so stupid to expect capital growth. The only people that stupid are in our banks who are now lining up to lend these people Australian taxpayer backed money to buy Australian properties. As I have said before on this website, you couldn’t make this stuff up.

    • I’m constantly surprised by the isolationist view that of most of the highly intelligent and honorable people on this blog have.

      As I understand H&H advocates low interest rates to pump prime manufacturing to support the next tranche of the economy we will rely as it has been smashed by the boom and high dollar.

      That we need macro-prudential reforms aka NZ to put a lid on the housing market ie that may require further efforts to limit the damage done by O/S buyers.

      We dodged a GFC bullet on the back of china and whinge about them coming over and spending some of their dollars.
      Both major parties have never tried to limit the housing market with Howard beating his chest that he hadn’t found anyone crying about the fact their house prices doubled.

      H&H contended that his vote for the Greens was a protest vote, all the while they are the ones that want innovation, education, manufacture of next gen product not back the future Lib Sh**T. Their housing policy is not what is required YET. Maybe their RRRT in it’s original form could have helped build that manufacturing need to leap forward?? But Doc Tony will entrench us in the Back to the Future idea of HOUSING IS GOOOOOOD, everybody LOVES houses.

      You are strangled by your myopic view and are like wolves howling at the mooning waiting for your own voice to be echoed back. Get your heads out of the rut and look at the world as a whole as you appear to be least entrenched.

      In the end if you don’t care to deal with the world as a whole (Global warming) this is small potatoes

  2. My experience has been that if Australia has a problem, it originated, or is at its worst, in Sydney. Traffic? Overcrowding? Cost of living? Violent crime? White-collar crime? Religious bigots? Corrupt public officials? You know where to look.

  3. Now perhaps you’ll see why I tip Melbourne as the best place to go ( Sydney’s not far off done). None of the affordability factors matter. Only cheap money and property are inputs to the equation. It doesn’t matter if it’s “Chinese” money or locally sourced. Until debt is repriced, expect this to escalate everywhere in Australia, as it has in many parts of New Zealand.

  4. I often wonder what the Chinese government would do if the situation were reversed.

    Deep breath, sigh.

    • Worth noting that even the HONG KONG government has effectively banned mainland Chinese from its market due to the distortion a they bring. The sooner we do this the better.

      • Unfortunately we’ll probably only see reform after the wheels fall off. I don’t have much faith in politicians and when it comes to politicians and housing the record globally is horrible.

        If Australia is different it’s because we’ve seen what happens when countries go down this path but we’ve decided to have a go anyway.

        Our difference is we’re twice as stupid.

      • “If Australia is different it’s because we’ve seen what happens when countries go down this path but we’ve decided to have a go anyway.

        Our difference is we’re twice as stupid.”

        Sigh.

  5. If the market topples over in a year or two,our banks will be safe as the chinese will be left holding the baby…

  6. Is this a case of overseas Chinese buyers purchasing new property only? Not sure why John McGrath would have an opinion here given he is a used home salesman.

    Unless they’re openly flouting the rules and this needs emergency investigating by the FIRB.

  7. The benefits of a lower dollar for you. They went relatively quiet when the dollar broke parity. Imagine when we hit 60-70c again.

    • Spot on, Jimbo! And not just residential property bargains, either. Shopping malls, iron ore holes, accounting firms…you name it, it will be cheap to buy and cheap to fund.

  8. many people doubt the effect Chinese are having on Aus house prices. Personally, I think its endemic and would have to say the 6 auctions i attended in Melbourne’s east a few months were ALL dominated by Chinese immigrants (ok – how do i know they werent existing residents wah de wah de wah). 3 things are driving this market a) cheap rates b) SMSFs and b) foreigners.

    • Squirell, I don’t doubt the effect – remember when Rudd first loosened the laws in 2008 and Chinese were then buying out whole suburbs it seemed? The FIRB was then set up, and the rules were “tightened”, except they weren’t.

      But it’s not just the 3 things driving the market – it’s also huge immigration – about twice that of a few years ago and the use of negative gearing which has a massive impact. Put all these things together, and you can see why we have this enormous bubble.

      • HnH – I might be wrong, but not too long ago you seemed to be underplaying the impact of Chinese on our housing market. Have you changed your mind on this?

      • You are right. That was based upon two assumptions. That they were by and large playing by the rules and buying new developments and that the falling dollar would deter them, which is what happened in the GFC.

        If these two are untrue then I am very worried, yes.

      • Give it a rest 3d – just because offshore interests pay your astroturfing bills. Prices are always set at the margins (as you know) and offshore buying is yet another nail in the affordability coffin.

    • +1 … but I’ll have a go, nonetheless.

      Now peoples, don’t any of you dare speak of those evil “protectionist”, “nationalist”, “populist” ideas (like capital controls) that might address this problem.

      Your globalist “free market” banking overlords do not approve.

    • Snap. Creating our very own serf generation, indentured to foreigners, many of whom are extremely shady.

    • Please wake up.

      This green-eyed vilification of anyone who, largely by reason of a birth date preceding our own, happens to appear to be a little higher up the parasitic food chain, only serves to cloud the root cause, by pitting everyone just under the 0.01% against each other.

      The 0.01% are the only true winners.

      Know Your Real Enemy.

  9. If it wasn’t bad enough FHBs were forced out by Boomers who had inflated equity to borrow against, now they’re getting priced out of suburbs by Asian buyers propping up their still school age kids!

    I’m sure there isn’t a house in East-woo (as it has been know for years) that’s worth anything like $2.39 million. The entire suburb is full of weatherboard ex housing commission homes that in the 1980’s changed hands for less than $100k.

    Only good news seems to be: These idiots are pushing prices so high that it should force the inevitable crash to happen sooner.

    • FHBs now have to contend with foreign Boomers. Sure they may not be directly competing for the same property level but the more these overpayed property transactions occur, the more it drags up the price of lower priced stock causing more diffuculty for FHBs.

  10. So why are we believing what a realestate agent has to say? Since they will do anything to sell more property so it sounds more like “Buy now or the chinese will”

    • Yes. For a bunch that routinely characterises all a real estate operator says as spruiking, McGrath’s claims have been readily accepted as gospel.

      Statistical evidence please.

      • If your on the ground you would see, the Sydney market is really on fire at the moment. This is what low rates does.

        It makes it cheap, it creates the feeling of missing out and so everyone pays more trying to buy limited amount of stock that hits the market.

      • Sorry I should have been more explicit – I meant McGrath’s comment re Chinese being the driving force. Leith posted a chart the other day showing that Perth had outpaced Sydney by a tad, no mention that that was due to foreign purchasers.

        Evidence to support McGrath’s claims is required.

      • Here is my evidence – I’ve been at inspections for the past 6 month and apartment market all dominated by Chinese, I have plenty of friends among them and none bought their property taking 80% loan they either paid all cash or bought with small loan amount.

        THATS why you do not see any pick up of Housing Finance statistic while prices rise strongly.

  11. A serious new feeling just hit me. I need to seriously consider leaving this country. At least there are voices of reason in US congress that get heard. Here, there are no reforms for anything being discussed. No politician with a voice / attention is taking care of us. Bogan apathy is totally making this possible.

    • Tiliqua scincoidesMEMBER

      It’s not just that. You’ll find that most politicians have a lot of wealth tied up in real estate. Why would they want to introduce measures that would erode their net worth.

      • Tiliqua…I’d like to do a survey at the RBA of wealth proportion tied up in property…particularly Sydney property.

        This does not mean they would be deliberately corrupting the system to enrich themselves. It would however reflect a distorted view of what a real economy should look like.

    • I had that feeling about three years ago. But when I looked around the world at other locations I figured out that either I wouldn’t fit in or that they would be in just as much trouble, more or less, as we are in Australia.

    • And it’s why many of us who left as big fans of Oz have watched with dismay from afar and choose not to return until sanity has reappeared. On current indications I’m budgeting on 6 years minimum.

    • For the past 13 years I’ve been periodically leaving in disgust for Europe and/or US and then coming back, hoping things have improved. They haven’t – they just keep getting worse.

    • Australia is a gulag.

      i will be leaving for good in a few more months…

      however. i must admit that Australia is beautiful country…nothing beats Australian wildlife/nature…i will miss it for sure.

    • You don’t have to be terribly smart when you’ve got about a billion people who will work for $2 an hour.

      This is flat out treason.

      Oh well I did my bit.

      Don’t forget, most of you voted for this. You just sold your kids down the river.

  12. In the meantime, everyone’s stroking out about the Indons buying 1m acres of land to feed themselves because we can’t even get that right!

  13. Any Sydney development that is OTP is being marketed to asian investors.

    Local buyers should stick to old stock if they want quality.

    20 years ago the land component was maybe 10%-15% of the purchase price. Now days it is over 30%. Guess where the savings are made.. in the build cost. The quality of construction is terrible in Western Sdyney, call me racist but the Lebanese developers who work out of the back their utes are building crap that falls apart in 5 years. Its not really their fault as they are just meeting the market but people are purchasing thinking they are getting good quality but really are not.

    • If it follows the usual pattern, the place will be pulled down, and a mansion/castle/fortress with ‘a lot of character’ will be built in its place.

      • Good luck trying to find a bunch of MR Woos from the Qing province to give consent at the strata meeting…

  14. When are we going to stop this insanity? Why must we import foreign appetite and greed for property when we have enough of our own home-grown?

    I have a sudden desire for a scorched earth obiliteration of the property market, with a crash so severe it would make heads turn in Ireland.

    Seems the nation is too eager to sell it’s soul in the name of property and greed. How is anyone meant to get in the market both now and the future with such rampand investor activity?

    • Price doesn’t matter if interest rates are low enough.
      Australia – Fears of 75 year property bust.
      UK – Carney worried about forming property hubble.
      Norway – Property market overheating.
      New Zealand – Central bank concerned about over extended property market.
      India – Property market endangers the economy.
      USA – Property market bubble fears.
      China – PBOC clamps down on overheated property market.
      And yes even, Ireland – property market bubble conditions reappear.
      Goodness! I wonder what’s to worry about….

      • It seems we think we are immune to the same problems other countries experienced with property bubbles and unable to learn from the experiences of them.

      • We are ! “Bassanese | Slowly but surely, the reduction in interest rates to historically low levels together with other positive property fundamentals are breathing life into the moribund housing sector, but the gains have been modest and largely reflect fundamentals.” (AFR)

      • “It seems we think we are immune to the same problems other countries experienced with property bubbles and unable to learn from the experiences of them.”

        Yes. But then again, EVERY country which suffered a bubble had the same problem. People in a bubble believe that they are somehow special, somehow unique, so that all the previous “obvious-in-hindsight” examples do not apply to them.

        Illogical? Yes. Senseless? Yes. Predictable? Yes!!!

      • Dumpling, I hope you’re right, but it seems we really are immune. I don’t know whether any other country that experienced a housing bubble had so many contributing factors like unprecedented foreign investment, massive immigration, negative gearing, SMSFs being used for property, low interest rates, urbanisation and anything else that doesn’t spring to mind straight away. And now that we’ve got this bubble, there are so many vested interests who want to keep the bubble.

        I thought it was unsustainable a few years back, but now I can see that the insanity will continue. I would love to see the bubble burst, but the reality is that it’s just getting bigger. How much bigger? Well now that we’re selling out to the Chinese or whoever else is the highest bidder, it’s clear that the government places home affordability at the very bottom of their priority list. In fact, it’s not even on the list!

      • “I would love to see the bubble burst, but the reality is that it’s just getting bigger. How much bigger?”

        That is a difficult question. My sense is; a lot bigger. As I detailed elsewhere on the MB site in the last few days, my view is that the bankers have little choice but to keep expanding credit to ever riskier segments of the market. Mutual funds, pension funds, super, too many people are relying on the banks to keep “growing” their business for their retirement plans. This pressure, combined with the “I will be gone by then” mentality of bankers, will pretty much ensure that our bubble will play out its course in full. But we are not there yet.

      • no worries – we are grasping the coat -tails of the ‘Communist’ monster. All those young men who died fighting for the philosophy of big f freedom are now suddenly a footnote in our glorious path to untold, unworked history! As long as we have our fabulous new money tree raining iou’s upon our notional nations, we will be forever satisfied and happy in our greed. Close your mind,lay back and think of the $$$!

      • dumb_non_economist

        Frankly I’ve stopped (not completely) thinking about prices, as long as they don’t impact rents they can go to the moon and bigger fools can hock themselves as much as they like.

    • “How is anyone meant to get in the market both now and the future with such rampand investor activity?”

      They aren’t.

      There is one benefit. It will create a large mass of landless poor who are open to easy exploitation.

  15. IF they are buying new developments only.

    IF supply of new developments is increased to meet the foreign demand without crowding out local buyers.

    IF the rates / land taxes on the developments they are buying are sufficient to cover the costs to taxpayer of services and infrastructure associated with ‘nest egg’ apartments being left empty (25 years the place next to my parents has remained empty)

    IF we are comfortable with the upward pressure on our exchange rate caused by the overseas sales.

    IF migration decisions will not eventually be made on the basis of ‘having bought OZ property’ rather than merit.

    THEN it is probably okay as it will keep our tradies and builders busy and eventually the apartments/houses will be available to locals to buy or rent.

    But that was a lot of IFs

  16. OK. This is not about goody-two shoes political correctness. It is about history, logic, Government immigration policy, law; it is about reality.

    We all need to stop blurring the distinction between Chinese and Australians of Chinese origin. Australians of Chinese origin are just the same as Australians of Irish, British, Italian, Greek etc. etc etc origin.

    Any other perspective, implied or explicit, is not worth the ink.

  17. Forget about market crashes and reversion to the long term means. Australian capital cities (Syd, Melb) are located IN Australia, but are now International cities. They don’t belong to us anymore in any reasonable sense.

    The best bet is to pick a nice regional centre (100k pop or so) and relocate there. Work out some way to generate an income – use the internet as much as possible – and skill up on efficient living with solar, etc.

    If you work in the FIRE sector you may be able to compete the big money buying the cities, but most people will never be able to generate the cash flow required.

      • Yes, remember some dmeographic study (about 2010) cited provincial QLD town Bundaberg (pop 100k) had relatively more expensive RE than New York (based on average incomes). That was before recent flood demolished a large chunk of the town.

  18. This issue could be used as a thin end of the wedge to reform land tax.

    Start by implementing a higher rate/lower threshold for absentee/non-permanent resident landlords (this also means that OS students can’t hold the title for the benefit of their parents).

    I have no idea on the legality of such a maneuver, but if OS investors want to protect their capital by bidding up the price of shelter in Australia, they can compensate the Australian people by paying a premium for it.

  19. the Chinese are clearly targeting strangled bubble markets here in the Antipodes and North America. Piling in to California for example and ignoring Texas.

    With Hong Kong on a Median Multiple of 13.5; Shanghai 15 and Beijing 20, they clearly see speculative upside in markets elsewhere at 6.0 Median Multiple and above.

    Normal open housing markets do not exceed 3.0 Median Multiple … refer http://www.demographia.com . Talk about dangerous Multiple Stretch !

    Hugh Pavletich

    • “the Chinese are clearly targeting strangled bubble markets here in the Antipodes and North America. Piling in to California for example and ignoring Texas.”

      That is interesting. Assuming you are stating the truth (can you back it up?), it is not that they are simply looking to “live outside China”.

      Maybe they lived in communism for so long that they have no idea of bubble – bust cycles?

  20. I almost emailed Abbott. But I figured, well, he’s most likely just a dick.

    Should we start a petition on change.org? The NBN petition at least got a lot of attention, although it probably won’t change the Lib’s mind about the good NBN.

    I’m a bit hot headed myself, it really makes me angry that we are giving away our cities, on top of a bubble.

    Maybe a more diplomatic person could set it up?

      • Sounds like a plan.

        Then, when a GFC 2.X rolls in, and the grand solution is a debt jubilee, everyone will be made whole and no one need lose their shirt.

        Er … wait …

      • That’s if there ever is a crash. With the amount of foreign funds being welcomed here, each foreign buyer trying to outbid each other, it seems this insanity has a long way to go.

      • Then, when a GFC 2.X rolls in, and the grand solution is a debt jubilee, everyone will be made whole and no one need lose their shirt.

        Er … wait …

        Well there’s obviously a second part to the puzzle.

        I mean there is only one person that stupid, and he is the finance minister, not the prime minister.

    • I think we should petition Tony Abbott. I don’t know how well a petition on change.org would go – it seems to be a bit out of the mainstream if you know what I mean, but if everybody sent Abbott an email or letter about how unhappy we are with the present arrangement it could have an impact.

    • I think we should petition Tony Abbott. I don’t know how well a petition on change.org would go – it seems to be a bit out of the mainstream if you know what I mean, but if everybody sent Abbott an email or letter about how unhappy we are with the present arrangement it could have an impact.

    • A petition would be a start. Better to try now then wait before we are completely sold down the river and pillaged by foreign property invaders.

      • Petition, letter… let’s do something. I think the politicians only see the bubble as something good for property owners, with the wealth effect. They have no idea of what it takes to climb on the ladder now and whether anyone would want to climb on when property prices are so unaffordable. They see property sales to investors and think it’s all good – properties are being bought and sold without giving any thought to the fact that investors and foreigners are outbidding Australian would-be homebuyers at every turn. Tony Abbott has now inherited the housing bubble, and while I’m sure he has no intention of changing anything (especially with the PPL home buyer grant) it wouldn’t hurt to let him know that we, the great unwashed, are aware of what’s happening and are disgusted.

  21. A brand new entrant in the market LOLOLOL

    That is one of the most ridiculous statements I have read this week

    The Chinese have been here for 200 years!!!

    And McGrath obviously hasn’t been to Hurstville – Chinese buyers are nothing new…this current Chinese buyer craze is severely overstated IMO…

    • They’re not selling “Asian invasion”, they’re selling “buy now, or miss out to chinese forever!!”

      It’s seeding fear about missing out.

      • +1

        However, if Hugh Pavletich’s post above (about Texas and California) is accurate, then there is a good chance that your plan above (i.e., we can all become cashed up renters at the expense of greatest fools from mainland China before the clock hits midnight) will work.

  22. And anyone familiar with the history of Australia would also realise the fear of the Chinese invasion is nothing new either

    • Except this time they are looking to launder/move their money out of China before a corruption inquiry is brought down upon them.

      What good is AUSTRAC policing our financial system and markets, when money is coming in to the country to purchase property from dubious means.

  23. FED prints -> China absorbs -> Chinese spend on local and foreign RE. Simple.

    They must move all dodgy earnings outside mainland to protect it as if you fall out of grace of communist party all your local assets will be confiscated.

    The only good thing there is they bid up prices on themselves as well, which serves as a deterrent of future migration.

    • As someone in that industry I can tell you, there are more and more people coming into try to sell their wedding etc rings to get the cash to live. The sad thing is – the sellers are getting older and older…..

      • That is heartbreaking.

        While we’re on the subject of ranting (yeah, i know that’s not a subject!) :

        As Keating once said, the great victory of Australia was marrying an open flexible economy with a dash of socialism. Howard ruined that completely and now the whole mess is so bad, the tax base so distorted, the property market so out of whack that no government of sound heart or mind could put it right without sacrificing themselves at the feet of the oh so entitled middle/upper class of Australia.

        When I was 21 I used to routinely engage with young people who decried Australia and argue that we were we managed and prosperous (because let’s face it, on the surface we are). 3 years on and I don’t do that anymore, I never spotted the distortions building and building and building.

        A blow off top over the next few years and then it’s mattress bank I fear. Thank you to the staff at MB for providing such a good service free of charge. I like others will subscribe, when funds allow.

  24. What is it about Sydney in particular that is so attractive to Chinese Investors?

    Is it because property prices in Shanghai have sky-rocketed whilst rural prices have stagnated, the draw a parallel in Australia’s market?

    • Not just Sydney – there’s a lot of Chinese investors buying in Melbourne too. I guess Sydney is a beautiful city if you have harbour views, and also while it’s booming they want to get in on the action. Obviously they believe they’re going to make a big capital gain and I am sure the spruikers of Australian property tell them what a stable country it is here, and property only ever goes up. And at the moment it is only going up, much as I would like things to be different.

      As for comparing property in China, they realise that they can buy the land here and it’s theirs forever unless they sell. And they can buy as many properties as they want here unlike China. I’m sure they see us as a pretty stupid country, being willing to sell everything to the highest bidder.

  25. Past time for a new polical force. One that gives more than the 2 or 3 major parties – represent ie: bowing down and sucking up to our geographic neighbours. Baby Boomers have proved themselves as glitter pussies

  26. I dont see the problem. They are only allowed to buy new houses right? Sydney’s construction rate is chronically low and without the Chinese it might be nothing.

  27. Big Australia, big tax breaks & big cash inflows from foreign buyers, what is not to like for our FIRE economy organisers?
    FIRE has a plan, perhaps a 200 year plan at least. You may not be included as a beneficiary, but that is not their problem.
    I remember a decade or more ago State Premiers & Capital City Majors regularly jetsetted the globe with the expressed intention to see how big cities functioned. Got the picture?
    Whoever is buying existing well-located RE, be that cashed up foreigners or Super backed developers with an eye to a highrise overload, are part of the plan – intentionally or accidentally.
    Rapidly increasing the value of inner city & strategically positioned RE sets the stage. Initially empty the inner 10km of the big cities of stand-alone housing and replace with multi-story – unaffordable of course. This in turn blows out prices in the next zone out. Continue ad infinitum this demolish/build-up/demolish/build-up economic model in ever expanding circles. Special system requirements – more debt slaves or rent mules and no APRA limits to bank lending.
    Big Australia, good to go.

  28. I happened by accident to inspect this rather high end property last Thursday in a Melbourne Eastern suburbs well known asian hotspot (its close to the top private schools):

    http://www.domain.com.au/Property/For-Sale/House/VIC/Balwyn-North/?adid=2010677921

    A new development by a small but respected boutique building company, when asked, the agent conceded it had been specifically designed, built and marketed to appeal to the high end of the off shore Asian market (i.e. small block, no garden, all house (83 squares), very high end finishing, every conceivable feature and luxury, including a lift). You name it, this property had it. Asking upwards of 4 million.

    Clearly the developer is aiming for a high margin development. Yes its provided employment, and good on them for that, but is this the kind of housing that’s ever going to be in the realm of your average punter? For the .1% only.

    Sample of one for sure, but an interesting example of one way that off shore money is a “driver” of the domestic residential real estate market.

    We then went and had a look at some of the “shoe box” medium/high density apartments going up in Box Hill. Like 48 miniscule (student housing) apartments on a single suburban block. I’m still affected by the cognitive dissonance of the day!

  29. Joe Flood says “I dont see the problem. They are only allowed to buy new houses right? Sydney’s construction rate is chronically low and without the Chinese it might be nothing.”

    Pru’s expose of the $4m sale in Melbourne’s east is a good example of how hot foreign money is distorting the market price for land. It goes like this: existing older style home is bought and demolished. New luxury home on the same site is designed and built specifically with the wealthy foreign buyer in mind. No expense is spared. The block is no longer “affordable”. The nature of the suburb changes. Land becomes more expensive.
    Is this a good thing? Our FIRB seem to think it is. They give this type of sale the thumbs up because the home now falls into the category of a “New Dwelling” and as such…”Non-resident foreign persons need to apply to buy new dwellings in Australia. (However) such proposals are normally approved without conditions.” (FIRB Guidance note 3)

  30. New entrant into our property market? The FIRB annual report series does not show China to be a new entrant. McGrath also recently issued a press release likely printed in verbatim here:
    http://www.smh.com.au/business/property/chinese-buying-sydney-homes-at-record-rate-says-john-mcgrath-20130913-2tocn.html

    This includes more shameless spruiking and some huge data ahem.. ‘errors’. True, the FIRB 2012 annual report shows $4.2B Chinese property purchases in the year ended June 2012, but this figure includes commercial purchases (as noted in the Bloomberg piece). The FIRB report does not provide a residential purchase total figure for China. Extrapolating from the total for all countries (admittedly a dangerous practice, so caution must be exercised in its use) which shows residential property accounting for one third of the total property purchased by value, this figure is reduced to $1.39B. The accompanying Chinese figure for number of real estate purchases (residential and commercial) in that time period is 4,752. Applying the one third calculation, this brings us to a measly 1,568 purchases.

    This figure of 1,568 accounts for less than 0.3 % of housing loans across Australia over that time period (using ABS Housing Finance statistics). If we assume all of these 1,568 Chinese purchases were in Sydney, the proportion of sales increases to just under 1% of all purchases in the year ended June 2012. Note, based on these extrapolations, the average Chinese residential property purchase price was $886K. This is well above the median price for Sydney in that year ($571K – ABS Housing Finance).

    This McGrath press release exploits a dip in investment from ALL COUNTRIES, not just China in the period ending June 2010 in order to incorporate the astronomical 2011-2012 increase of 75% in value of commercial and residential property purchased. Yes, commercial and residential real estate investment by China increased by 72.9% between 2010 and 2012 (referring to table 2.11 of the 2010 and 2012 FIRB annual reports), but it increased by 192% over this time period for all countries including China. In other words, China lagged behind. This was the post GFC surge and, as we know, MOST markets surged post GFC.

    2011 to 2012 was not as volatile. The total value of all residential property purchases by other countries decreased by 6 per cent BUT the total value of all commercial property purchased almost doubled!

    So now you know where overseas nations are putting their money. They like our commercial property a lot more than our residential property.

    I referred to tables 2.8, 2.9 and 2.11 in FIRB annual reports 2010 and 2012.

    Lastly, if McGrath is gearing its sales towards Chinese buyers then an over-representation of Chinese will emerge in their clientele. One must understand this bias when viewing data sourced by McGrath.

    In short, I smell desperation, and this time the reek ain’t emanating from my armpits.

  31. Interesting attempt to come up with some answers by Angelo Karantonis of UTS on this very question (published around late 2011 I think), paper titled:

    “Is Australia selling off its real estate?”

    http://www.prres.net/papers/karantonis__is_australia_selling_off_the_farm.pdf

    His conclusion: the data is inconclusive.

    Table 2 p7 says 93/64/24 billion of residential foreign investment in off the plan/new/existing residences respectively. I think(?) that’s since late 2009 when the new “off the plan” rule came in but I may be completely wrong there (he frustratingly does not make clear in the Table caption exactly what period of time is convered or what FIRB years he’s taken numbers from — gggrrr!).

    Despite this annoyance, those are some pretty hefty sums being reported I would have thought.

    (PS: My apologies if this is old hat but I didn’t find any mention of Karantonis on the macrobusiness site, so thought I’d post it.)

    • It’s no wonder they’re hefty. Those hefty sums are ‘summed up’ over 26 years! See Table 1 page 3 where Karantonis states ‘off the plan’ began in September 1987.

      So, again, if the FIRB Annual Report property purchase data are complete and correct, all this talk of Chinese money flooding into our property market, creating a boom, is unmitigated BS of the purest form.

      And if McGrath’s internal data (skewed towards Chinese buyers due to their niche strategy of selling Sydney’s most expensive properties to a handful of wealthy Chinese) is demonstrating a huge Chinese-led property rush relative to previous years (as stated in the McGrath video, posted above this thread), then this surge is coming off of an extremely low base.

      Furthermore, McGrath’s observed increase is likely driven by an increase in overseas niche marketing which may have bumped up Chinese buyer numbers to two handfuls rather than 2012’s handful. As stated in my above post, Chinese property purchases accounted for less than 1% of all property purchases in Australia in FY2012. 1% of total volume does NOT move a market.

      Let’s focus on the REAL reasons for the recent price surge (like unsustainably low interest rates) and put all of this deceptive BS behind us.

      • Table 2.8 of the FIRB annual reports in the years from 2005/2006 onwards to 2011/2012 tell us that in that time there was more than Australian $45 billion invested in RESIDENTIAL real estate. That is an awful lot of RESIDENTIAL real estate.

        Look at the extent of marketing and effort put in here

        http://www.gifang.com/

        That is a lot of effort for 1,568 purchases.

        Some other guy from MacroBusiness basically proved that FIRB dont check out anything.

        In the 2012 FIRB annual report it says that for the year there were 4,752 applications from China (this covers applications to buy everything) That was 43% of all foreign applications to buy everything.

        If anyone truly believes that Chinese buyers are not a very very significant part – certainly sufficient to shape prices – if not a majority of the market in quite specific areas of Sydney and also Melbourne then they are dreaming. Pull over one sunny saturday at any auction in inner Sydney or Melbourne and see for yourselves.

  32. “If Australia is different it’s because we’ve seen what happens when countries go down this path but we’ve decided to have a go anyway.

    Our difference is we’re twice as stupid.”

    GREAT QUOTE…. so spot on!

  33. Bat Paddy:

    “Table 2.8 of the FIRB annual reports in the years from 2005/2006 onwards to 2011/2012 tell us that in that time there was more than Australian $45 billion invested in RESIDENTIAL real estate. That is an awful lot of RESIDENTIAL real estate. ”

    Which accounts for a mere 4% of all mortgages taken out over the same time period (ABS Housing stats).

    “Look at the extent of marketing and effort put in here http://www.gifang.com/ That is a lot of effort for 1,568 purchases.”

    Sure, but what came first? The purchases or the website?

    “Some other guy from MacroBusiness basically proved that FIRB dont check out anything. ”

    Please provide a reference. And can you explain what’s meant by “FIRB don’t check out anything”? Are you saying they don’t preside over every foreign purchase of Aussie assets? Or do you mean they approve every application brought to them?

    The statistics in the FIRB annual report are presented as foreign investment application approvals. There’s no saying there’s not a whole (illegal) industry of foreign buying via local proxies. But I’m not aware of any evidence of this. On the other hand, McGrath’s use of the FIRB annual report as evidence of Chinese money stimulating our property market is an ‘own goal’.

    “In the 2012 FIRB annual report it says that for the year there were 4,752 applications from China (this covers applications to buy everything) That was 43% of all foreign applications to buy everything.”

    Ah yes.. thanks for that BP.. my error. So the ‘one-third’ calculation brings the estimated total of Chinese property purchases (residential and commercial) down to 1,396 (the total amount of property purchases being 4,187, as shown in table 2.11). Again, extremely low volumes, and I accept FIRB might not be catching everything. However, if the Chinese frenzy is as big as the myths and legends purport it to be, based on these numbers, FIRB would only be picking up 3 to 5 per cent of all Chinese purchases??? Is this likely?

    “If anyone truly believes that Chinese buyers are not a very very significant part – certainly sufficient to shape prices – if not a majority of the market in quite specific areas of Sydney and also Melbourne then they are dreaming. Pull over one sunny saturday at any auction in inner Sydney or Melbourne and see for yourselves.”

    I don’t possess the ability to observe an auction participant and state with certainty the country of origin of the money they are bidding with. So I’ll have to take your word for this BP. Put another way, I’ve only known one Chinese national my entire life (maybe I don’t get out enough), but I know quite a few Australian-Chinese.

    • Datadawg

      OK so its 4% of all mortgages taken out. But 4% would shape a market, particularly if you assume it is in concentrated areas of the major capitals – Sydney and Melbourne mainly.

      And as FIRB themselves have noted (at the senate inquiry where the Chodley Wontok thing was discussed – see below – I am glad you made me chase down the person from MB who exposed how feeble their system was/is) their concerns are not people putting in false applications, but those not putting in any applications.

      As for the Gifang reference it isnt just one website in China selling Australian real estate – there are more than 20, and if anything they have better coverage of Australian real estate than anything in Australia. If you read Chinese and follow the blogs on them then you will be able to see how much comment the Australian real estate ‘approval’ system gets.

      The Guy that proved that FIRB dont check anything out was Gunnamatta with his Chodley Wontok application.

      Here

      http://www.macrobusiness.com.au/2013/03/understanding-foreign-property-purchases/

      and

      http://www.macrobusiness.com.au/2013/03/firbs-foreign-property-buyer-fail/

      I see Gunnamatta hasnt been around for a while. He did a service in showing them up. His point was right. It isnt a matter of race of the buyers, it is a matter of understanding the impact of foreign purchases of existing real estate in key markets on Australians aspiring to purchase in those same markets.

      I think that leaves your contention that Chinese purchases have no impact on key markets not carrying me. But I am also quite cognizant that my contention that Chinese purchases of Australian real estate do have an impact on key markets will not carry you too.

      More looking and more factual data on the subject should be encouraged all round.

  34. Bat Paddy:

    I’m speaking of property prices in general, rather than specific (key) areas, so no contention made by me on that point. The RP data price index is purported to adjust for compositional bias and it’s been shooting up for the last few months. A few concentrated areas shouldn’t have that effect if the index is what RP data say it is.

    I understand that Chinese purchases, if substantial enough, could be providing a floor for our prices, and may have been doing so for several years, but this year’s property rush seems to be more attributable to interest rate drops and increased LVRs (see APRA’s latest issue of ‘Insight’). This is just an observation, not a response to anything you’ve said.

    As I said in my first post, if the FIRB data are a complete and accurate record of overseas purchases, then any China-led boom is a myth. If McGrath described these data as they are, instead of fudging the figures, they would be doing themselves in.

    However I must concede the links you kindly provided cast considerable doubt on the completeness of FIRB data :-D. That being said, we can only guess what proportion of overseas purchases illegally skirt around FIRB (and that’s probably how the government wants things).

    Perhaps an unreported proportion of 50 to 60 per cent is not an unreasonable assumption.

    Of course, risk is another factor to consider: I would think twice about illegally purchasing overseas property – especially property that is so darn expensive! .. unless I don’t know (am not told) the purchase is illegal…

    As for China-agents (McGrath, Gifang et al.) not all business ideas are worthwhile so I don’t consider the existence of these specialised services to be evidence.

    Totally agree about the need for more reliable data. But if we had reliable data, we’d be giving the banking cartel a hard time… and they wouldn’t want that. We’re of more use to them trapped in this fog. Thanks again for those links BP. They cleared some of the fog up for me.

  35. From the obersavation of my friends and my self, 100% of auctioned property we attended in Mount Waverley and Glen Waverley ,was sold to Chinese buyers.