China’s great Australian land grab

By Leith van Onselen

As part of the Australia-China Free Trade Agreement (FTA), concluded on Monday, the foreign investment limits on Australian commercial real estate will be increased from $54 million currently to $1.078 billion, effectively giving Chinese developers unfettered access to Australian land.

While many argue that increased participation by Chinese property developers will boost Australian housing supply, thereby improving rental availability and housing affordability, some local developers have accused Chinese developers of land banking – paying over the odds for lots and sitting on the land, with the explicit purpose of getting their money out of China. The Pascometer explains:

A conversation with a Melbourne real estate developer earlier this year turned unexpectedly to his dislike of Chinese investors…

The local developer complained that Chinese investors were paying well above market prices for sites and then sitting on them in no apparent rush to develop. It’s a complaint that has subsequently been confirmed in other industry conversations and put on the record by Lang Walker, CBUS and the head of the ANZ bank’s head of commercial property.

Billionaire developer Walker said the logic behind the prices paid by Asian developers was questionable. “It is a little scary but at the end of the day I think it is just them getting money out of Asia as opposed to the fundamentals,” he said.

An article by Florence Chong, published last week in Business Spectator, confirms these claims:

The foreign developers are routinely paying at least 25 per cent more than Australian developers are prepared to pay for sites in sought-after areas across Sydney and Melbourne.

As a result, local developers are effectively being priced out of the market.

“I am finding it difficult to get good sites,” says a Sydney developer, who requests anonymity…

In Melbourne, the situation is similar. “With the influx of Asian developers, the market for development sites here is very hot — prices have risen 25-40 per cent in the last two years,” says Ashley Williams, managing director of Evolve Development.

…those entering the market at the current point in the price cycle will have to build the higher land cost into the price of the end product.

The above anecdotes certainly do place a question mark over whether foreign investment improves housing supply and affordability. If the end result is that land prices are being inflated, raising the end cost of apartments, then how is this beneficial for prospective home buyers and renters?

In any event, concerns about Chinese land banking would best be addressed by implementing a broad-based land tax in order to punish vagrancy, bring developments to market quicker, and to capture some of the rents from selling-off Australian land to foreigners.

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Comments

  1. So what happens to the Chinese populace when SHTF and lynch mobs start roaming the streets looking for blood? Something not often discussed as people fear the repercussions of even suggesting it, but look at the past and how homo sapiens are intrinsically tribal.

  2. How dare Chinese land bankers try to profit using the local land bankers business model. It’s Un-Australian!

      • If we want to trade i.e. buy stuff with our CAD we need to sell assets. Urban real estate is as good as anything!

      • What does a FTA have to do with trade?

        It’s in the first episode of Yes Minister, the title has nothing to do with what’s inside.

      • and WTF do ‘good sites’ in Sydney and Melbourne have to do with ordinary people, Oz vs Chinese property developers, my heart bleeds….. while regions are crying out for direct investment…..

      • Trying really really hard – looking through another’s eyes, walking a mile in their shoes – nope, just can’t do it.

        Suffer in ya jocks, all of youse.

      • Exactly, they showed no concern when they weren’t affected, only those lower down the totem pole, so f…’em.

  3. Leith,

    Can you confirm that the new China/Aus FTA has no effect on the existing FIRB rules preventing Chinese nationals buying existing Aus dwellings?

    • Does anyone think this Gov has steped back of 2 secs, and thought,… what is China’s long term ambition here? This Gov is so short sighted……..and the current Russian issue is likely viewed as just a Russian issue?
      Might sound alarmist, but once you sell assets to the Chinese on a large scale, you reckon there is a chance in hell of ever getting these assets back?

      • You’re not alarmist and we have good reason to be fearful. All the government has thought of is that all this money will be pouring in, and that’s it. And of course the Chinese aren’t going to give back Australia’s assets.

  4. AFAIK the screening threshold is going from $248M (not 54) to $1.078B, still a big jump though.

    [Edit] Ahh nevermind, I see commercial property limit differed.

    I note the United States already has the $1.078B limit though, so US developers already have unfettered access to Australian land.

    Are we getting increased privileges of any type for buying property or land in China as part of the agreement?

  5. The quote from Walker suggests the current motivation for Chinese to invest here is fear. At some point fear will give way to greed and the Chinese money will evaporate like water spilled onto bitumen in Marble Bar. What’s our next trick going to be?

      • Nah – Barnaby Joyce told Richo and Alan Jones that FIRB would protect us. Have a read of this for some lunchtime depression

        http://www.skynews.com.au/video/program_richojones/2014/11/19/richo—jones-november-18.html (h/t Jimbo)

        http://www.macrobusiness.com.au/2014/11/asx-at-the-close-400/#comment-866817

        Barnaby Joyce (Circa 12.30 Mins) ”I also know that at times, issues go to the Foreign Investment Review Board, and they are quietly told – ‘Don’t go any further’. I understand completely the sensitivities that are abounding in regards the ownership of land. I support investment, that is taking something from one level to a higher level, ah, but in many of the instances we are getting just transfer of ownership. And we do have a substantial amount of land that is now totally foreign owned, or partially foreign owned. In fact, if you laid it out on a map, it would be about 2.2 to two and a half times the size of the landmass of Victoria, which is quite a reasonable amount of land. And when I brought that up in China, they said that ‘well that’s about the equivalent to Sichuan Province, would you allow us to buy that, and they said ‘of course we wouldn’t.’ and ah, but we are the most liberal nation on earth in allowing people to invest in our nation, but we have to manage the sensitivities that come with that. I am fully politically aware of that. In any political arrangement you will have differences of views. I suppose I represent more of a view that has more concerns than others. ”

        and on…………

        Richo: Can anyone tell me the percentage of arable land in Australia that is foreign owned? Can anyone give me that?

        Jones: We were promised a register before the last election. Now the cynic would say the reason we don’t have the register is because we didn’t want to embarrass China before the signing of a free trade agreement. We still don’t have one. It oughtn’t be too difficult to get a register of who owns what.

        Barnaby Joyce (Circa 14.36 Mins) “Well we want for that to happen in very short order. In fact, I believe the Treasurer has made a statement that it will happen imminently. I take him at his word for that. It is something that, you are dead right, we did take to an election, it is a promise. We have made sure that in our Korean negotiation, that that was part of the negotiation, in our Japanese negotiation, that was part of the negotiation, and our Chinese negotiation, that was part of the negotiation. So there are no surprises for any of these countries, they know exactly what our views are.”

        Jones: China will only do one thing. They are acting out of self interest. They want to buy dairy farms and beef farms in this country ………….they are playing us on a break etc etc…..

        Barnaby Joyce (Circa 17.56 Mins) “I agree with you. If you ask me ‘Do I think they are good at business?’ of course, they are. And of course if we got to a point where we just completely emasculated our own capacity to be a participant in our market then fools are we, and I hope that is why we have the Foreign Investment Review Board, to stop that from happening. ………….If we let them do it, we are stupid. I hope that is what the Foreign Investment Review Board stops from happening.”

        Jones vis China buying dairies in Tasmania……..

        Barnaby Joyce (Circa 20.50 Mins) “Obviously that’s a question for the Foreign Investment Review Board. I know that Joe Hockey has a strong interest in making sure that we get a better balance in the Foreign Investment Review Board, that we get people who are off the land, and a Foreign Investment Review Board who have stronger views, can express some of the views that you’re expressing very ably there, Alan, within that Foreign Investment Review Board. I don’t disagree. If you completely sell, or sell a large proportion of your capacity to produce a product, whether that’s milk or cotton or beef, you are, we are a fool. Of course we will get caught short, and fools are there to be exploited. That’s what you do to fools. Once you know. They turn up and you exploit them. But I [pause] hope that the Foreign Investment Review Board, and believe that will be the case, will not let that happen. Because that would definitely be against our national interest.”

        Jones: Since 2003 thirty thousand established homes have been sold in Australia – 23 billion – to foreign interests. In the last 12 months $5.9 Billion worth of established homes – now that’s against the law, and the Foreign Investment review Board throws their hands up at the Kelly O’Dwyer inquiry and says ‘ah look, we only have 20 people here to monitor confirmation with the laws of the land’ so it’s open slather. There are people buying established homes, against the law, and there has been no divestment – sorry there has been seventeen in eleven years. Of thirty thousand who have been told you are not allowed to buy established homes. Sell it and lets get it back. You talk about the Foreign Investment Review Board. I wouldn’t trust them to get me up in the morning.

        I know its Jones and Richo, I know its Barnaby and I know its Rupertarian TV – but that was an Australian government Minister telling the world the Australian government is relying on FIRB to look after a national interest. The same FIRB that replied to Chodley Wontok

      • I think is been obvious to a lot of people that the current and previous govt, are short sighted fools who have been out thought and out maneuvered at every stage by the Chinese forward looking plans.

      • …as well as all our dairy, prime commerical and residential land. Australian land is their solution to feeding their billions, they won’t give it back easily.

      • If it wasn’t so incredibly true it would be an f…king joke. I don’t think there’s anything more the government could do to show that they are completely against Australia’s long term interests. Isn’t that treason?

      • Careful with teh anti-Chinese rhetoric in this regard. It isn’t just the Chinese buying in rural Australia. There are a whole lot of European funds and I presume the Americans haven’t totally packed up and gone home.
        Also remember if you block foreign ownershop pf land, mines businesses and urban land you are in for one hell of a bad ride. It ios way overdue and the longer we leave it the worse it will be. Frankly it is all too late.
        The answers lie back in time.

      • It is truly bizarro that apart from the readership of the The Australian (who have been panting with delight about the China FTA) the penny is dropping all over the place that these FTAs are not about trade at all.

        It has just taken a huge one with China to make people’s brains kick into gear.

        “WTF are we doing?”

        Sadly, it seems that the last set of dills cheering on these dud deals may prove to be the right wing of the ALP as they no longer have any base at all and seem to be on mission to parrot more neo-liberal fairy tails than the LNP.

        If a few more conservatives like Jones give the issue a shake the government may start looking very green around the gills.

        The only problem with Jones on the side of the Angels is that the latte lovers will support the FTA out of reflex.

      • @flawse

        “There are a whole lot of European funds and I presume the Americans haven’t totally”

        But are any of those government owned “companies” with unlimited dollars available to pretty much buy what ever they like.
        And are any of them able to import workers en mass under a “FTA” .

        Seems to me there needs to be a distinction propagated here because its become a free for all for the govt of another country to buy up here. What other entities have the unlimited resources that these government owned so called companies have to do what ever they like.

      • Angryman – my opinion FWTW is that you are splitting straws…edit: hairs?. Is the CB/Corporatist network any different? Is it different that the Fed prints up USD by the Trillion and hands it to corporates who bought up our food chain pretty much 100%?

        All we have to do is be prepared to say ‘no’ and be prepared for the dire consequences. I’m just getting frustrated that people rant and rave but are not prepared for the consequences. That applies both ways. Where we are at now is as a consequence of decades of rampant economic satupidity. Do now have any choice other than to just keep selling off our land mines and businesses?

        Re the FTA I can tell you that it has made a difference to exporting a lot of products out of NZ. Not sure whether here will be the same. A lot it looks to me like we import from China without tarriffs and now we are being granted gradual, say over 4 years, reductions in the stuff we want to export to them as final consumption items.

      • md – I think the govt is giving us just what we want. If we sell the country we don’t have to get off our arses and DO something. We can just sit back eating in each others’ restaurants and using up the future – but who cares?
        How many in here are going to vote major super ripper recession? How many of the general populace. The lot that bring that down on us are going to be out of power one hell of a long time.

      • Add to this Australian water rights being bought up by foreign investors over the last few years, from European, American and Chinese. Things truly look grim for us.

        Does this FTA also allow China to flood Australia with dodgy produce directly instead of using New Zealand as a backdoor?

  6. wasabinatorMEMBER

    As appalling as the China FTA is, it’s somewhat amusing to see the game is up for these rent seekers. China is basically being allowed to move further up the rentier chain. How far does it have to go before the masses are fed up?? By that time the immigration rate will have diluted the local’s voices down.

    • By that time the immigration rate will have diluted the local’s voices down.

      I think no one was complaining while wages were rising. If incomes are rising, debt is no biggie. Now, I suspect we will start seeing more discontent.

  7. So can we also expect now skyrocketing real estate prices when this is combined with China being allowed to import workers on 457 en mass ?

    • wasabinatorMEMBER

      As poorly managed and utterly lacking in innovative thinking our govts are, they are absolute geniuses in figuring ways to keep the housing bubble growing 🙁

  8. Jericho’s piece is enlightening and disturbing.

    http://www.theguardian.com/business/grogonomics/2014/nov/20/why-isnt-the-government-being-held-to-account-on-the-china-free-trade-deal

    “Despite the negotiations going on for 10 years, the trade minister, Andrew Robb, told reporters there was “no time” to do new modelling because the deal was being done at “five minutes to midnight”.

    What this means is Robb and Abbott were more concerned about signing the deal on Monday so they could have a nice news story while the Chinese president, Xi Jinping, was in town, rather than wait till they had some idea whether the deal they were working towards was any good.”

    When Abbott loses office he and Robb should be put on trial and jailed.

  9. Curious to know if anyone knows if we keep track of “Months of inventory” statistics for the housing market here in Australia?
    For example, in the US, they keep track of Months of inventory (which is an approximation of how long it will take to deplete the current active housing inventory based on the previous 12 months of sales).
    For example, Houston current “Months of inventory” is 2.8 months which is way below the “balanced housing market” level of 6.5 months. As a result, developers are building homes as fast as they can.
    Would be interesting to know our “Months of inventory” in Sydney/Melbourne (I suspect it’s negative).
    At least, we should know what would constitute a “balanced housing market” level in our capital cities.
    Then we can go and ask our politicians why we’re not at that level? and
    What are they doing about it?
    What’s their plan to get there?
    This might also give us more visibility into the supply issue (which is highly debated).
    At least we can steer the conversation in the right direction away from the bullshit stuff that politicians like to talk about.
    Bubble or no bubble, the question for politicians is:
    Why we’re not at the Balanced Housing Market level?

    • Hill Billy 55MEMBER

      2B2F, Brisbane stats show there is about 6 months of supply available at any one time. As you surmise, Sydney and Melbourne are lower. RPdata have the stat on their web page.

      Just back from a shopping trip and seeing more ‘For Rent” signs popping up. Interesting times with unemployment QLD at 7% and going higher.

      I don’t think we are comparable to the US market. Someone else has postulated that the US norm of 4.5-5% vacancy rate for rentals should be the same here. At half that level, rentals are already dropping somewhat, so the average Aussie landlord is a bit more fickle than their US counterpart. Does that apply to the housing starts question you ask, don’t know, just an observation.

      Given all the rancour over the financial advice laws, I really think it time we did a decent job on bringing the RE agents to heel and make them accountable. They speill anything they like to get a sale.

      The bottom line of your question is that we do need more appropriate stats and information.

      Cheers