Trade Minister, Steve Ciobo, has dismissed concerns about the impact of Chinese nationals on Australia’s property market, claiming they are “absolutely not” contributing to price rises. From The Canberra Times:
“There are so many examples where I have been told stories where people say: ‘You know what, I saw Chinese buying real estate here in Australia’,” he said.
“But you know what? They’re Chinese-Australian…
“I think sometimes people make the mistake of seeing anyone who doesn’t look caucasian and saying: ‘That’s a foreign buyer’.”
He said Australia’s size and population meant house purchases from China alone could not make a significant impact on property prices…
Mr Ciobo said overseas buyers were “absolutely not” contributing to house prices and additional controls, including by the Foreign Investment Review Board, were not required.
“…make no mistake, the notion that in a country the size of Australia, with a population of 23 million people, that in some way high house prices are a consequence of investors from China, frankly it’s laughable”.
What is laughable is that Ciobo has completely dismissed the issue out of hand, and based on what data exactly?
The Foreign Investment Review Board’s (FIRB) Annual Report for 2014-15 registered a 17% increase in foreign approvals for existing real estate, from 7,915 to a record 9,236, with an average value of $1,092,000 (see below table).
Victoria and New South Wales (read Sydney and Melbourne) also lead the charge, which is hardly surprising given they are also the two bubbliest real estate markets.
Not surprisingly, real estate investment from China also exploded, nearly doubling to $24.3 billion in 2014-15 from $12,406 in 2013-14:
However, Blind Freddy knows that the FIRB data is highly spurious since it only accounts for approvals, not actual sales.
Kelly O’Dwyer MP, who chaired last year’s parliamentary inquiry into foreign ownership, acknowledged that the FIRB data was inadequate on release of the inquiry’s report (my emphasis):
“I regard the current internal processes at the Treasury and FIRB as a systems failure. Most concerning is that sanctions seem to be virtually non-existent. There have been no prosecutions since 2006 and no divestment orders since 2007. Suggestions by officials, that this is due to complete compliance with the rules is simply not credible. The data on foreign purchases of Australian houses and apartments is inadequate, making policy evaluations very difficult”…
FIRB chairman, Brian Wilson, also noted the inadequacy of the foreign investor data when he appeared before the Australian Securities and Investment Commission’s annual conference last year:
“There are about 11 million residential dwellings in Australia, and about 600,000 property transfers every year. It is inevitable some of those properties will be exchanged contrary to the law, but our ability to first discover and then prosecute these cases is sorely limited”…
“At the moment the FIRB and Treasury can only investigate the cases that come before us. What is needed is central depository of automated data to aid detection”…
The only data that is publicly available and up-to-date comes from the NAB quarterly property survey of 300 real estate professionals, which notes that foreign buyers (mostly Chinese) are very active in the housing market, accounting for around 12% of demand for new dwellings and 7% of demand for existing dwellings:
We also know that the global regulator for money laundering – the Paris-Based Financial Action Task Force – has warned that Australian homes are a haven for laundered funds, particularly from China, and has recommended that the Australian Government implement counter-measures to ensure that real estate agents, lawyers and accountants facilitating real estate transactions are captured by the regulatory net.
While it is wrong to pin the blame for Australia’s sky high housing costs on the Chinese, given that multiple factors are at play (e.g. tax concessions, supply-side constraints, high immigration, etc), it is also disingenuous to completely ignore the issue of foreign buyers purchasing Australian housing (especially established housing), and thus exacerbating Australia’s housing affordability problems.
