Chinese land-bankers hollow out Sydney housing supply

We reported recently that Vancouver has a staggering 70k residences now sitting empty thanks to Chinese land-bankers, even as young folks struggle to get into the housing market. Now it appears the problem is worse in Sydney, from the Daily Mail:

There are 200,000 homes on prime Sydney real estate sitting empty because foreign investors have bought them with no intention of living in them or renting them out, a leading real estate expert claims.

Douglas Driscoll, the chief executive of Starr Partners, estimates the number of unoccupied homes has almost doubled from 120,000 in 2011, in a city which is already the second most unaffordable in the world after Hong Kong.

Mr Driscoll believes the empty homes are a major contributor to Sydney’s housing crisis, which has seen prices double in the past eight years and rise at an average of $222 a day.

‘Foreign investors are only exacerbating the problem by buying properties and leaving them vacant,’ he told Daily Mail Australia.

Foreign investors are accused of buying properties and leaving them vacant (terraces in inner-city Paddington pictured)

‘(It) only gained genuine momentum in 2012 and in just a few short years we are already seeing 10-20 per cent of property being sold in some pockets to offshore buyers, which leaves a lot of Australians on the sidelines.’

Mr Driscoll said the government needed to realise the effect of empty homes on housing affordability and urgently start addressing it.

‘Foreign investment is not the elephant in the room, it is a heard of elephants in the room and more needs to be done,’ he said.

‘These properties should be offered for rent, but if they were to hit the open sales market, it would certainly help alleviate the sparsity issue we are currently facing.’

Mr Driscoll said hotspots included anywhere in the inner-city or where new houses or apartments were going up, such as Alexandria, Waterloo, Green Square, Sydney’s city centre, Parramatta, and even Blacktown.

‘There are some developments where you can see straight through apartments because there’s no furniture,’ he said.

‘In my own building in Kirribilli there’s 35 units and three of them are left empty.’

He said Chinese buyers were used to not receiving much of a return on investment and believed tenants lowered property values by putting ‘wear and tear’ on them.

‘They bring that same mentality over here without doing the research,’ he said.

‘A lot of them are also buying their children’s future, even if they are only in their teens, they are buying them now in highly desirable inner-city areas.

‘When their children are old enough they send them off to university and that’s where they live. So they might sit empty for three or four years.’

‘The government should introduce significant financial penalties or inordinate property taxes for any property owned by a non-resident that is known to be empty for more than 12 months,’ he said.

‘NSW accounts for half of all investor mortgage finance. Such a strong level of investor interest in Sydney is pushing up the price of our dwellings and it’s time for government intervention to reduce this.

‘I’m certainly not against foreign investment or property investment as a whole, but I do believe it has led to the market becoming hugely out of kilter, causing a multitude of social and economic issues.’

Massive charges should be applied pronto.

Houses and Holes
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Comments

  1. The Maret is free, working as intended. Who cares if some foreigners want a piece of the action? It’s driving prices higher and that’s good for the wealth effect. 😀

      • Not questioning the story, near my parents there are some empty properties, Singapore, and one Chinese… however, how did he come up with the 200k empty number????

        A natural skeptic I guess…

      • But Mr Eves offers a more tempered view.

        “No, basically the underlying factors in Australia when compared to the US are completely different,” he says.

        “One of the biggest differences is the fact we don’t have no-default loans. There were developers in the US building stuff willy-nilly and banks even giving unemployed people loans before the housing price collapse there.

        “So what happened with no-default loans is that if you owed the bank $400,000 and you purchased a home for $450,000 and then that value dropped to $350,000, then you could just walk away and the bank couldn’t chase your remaining debt.

        “That doesn’t happen here.”

        Now I recall someone mentioned this a few months back and pointed out that it’s only the state of California? where owners can hand back property with no consequence. The rest of the USA still collapsed under a similar system to ours.

      • Simon,

        Jingle mail’s been debunked here numerous times. 50% of US states do not permit no-default home loans and they fell in price just like the others.

      • Jingle mail…?! And why Australia is different. Geez, that chestnut has been debunked since at least the old bubblepedia days.

      • California doesn’t allow it on primary residence, I don’t think. There are no non-recourse loans in Florida, which was ground zero for speculation. It’s tiresome to hear the same lies trotted out again and again.

      • haroldusMEMBER

        Geez, that chestnut has been debunked since at least the old bubblepedia days.

        Ah bubblepedia. My MB gateway drug.

      • The jingle mail thing is a very helpful way to know who you can completely ignore. A bit like, Drop NG and rents will rise.

    • Ugh, if the market was free, SYD airport would not be a private monopoly.

      There would be no urban growth boundary.

      Firms would be allowed to build tall apartment blocks in most industrial suburbs.

      • In 2008 there were 11 states in the USA where Jingle Mail was allowed but 39 states where it wasn’t allowed and yet prices collapsed nationally…. Also in recent times there has been property bubbles burst in USA, Spain, Ireland, Iceland, Honk Kong (70% decline in 1997) Dubai, Japan, Sweden and significant corrections in places like Greece, France, Italy, Eastern Europe, Brazil and other Latino countries.

        There are so many examples that you can take out the 11 states in the USA where you could walk away and send the keys back and there is still a plethora of examples. Some had tax incentives, some didn’t, some areas in the USA had jingle mail allowed…. The main common denominator is that in recent history mortgage debt approached or exceeded 100% of GDP. Australia is almost smack on 100% for mortgage debt to gdp…. We are right in the bubble zone.

    • Douglas Driscoll just rang me back.

      His methodology is … rough. He waved at Census and foreign investor data. I was not convinced by the robustness of his measures.

      He is very determined they match what he is seeing on the ground in Sydney.

      Sydney has about 2m dwellings, so he is asserting a 10% vacancy rate.

      I challenge the jeering sneerers to provide a real measure if they don’t like Mr Driscoll’s.

  2. Mandate that no more than 1% of new apartments can be smaller than 50 sqm.

    Deregulate height limits in certain industrial suburbs – if it is ok to have a 10 storey hotel in Tullamarine, why not allow 15 storey apartment blocks in a hell of a lot more industrial suburbs in NSW?

    I think decent speed rail would help – between SYD and Newcastle.

    Howard and Gillard did the disastrous thing of making the minimum wage the same across AUS.

    The minimum wage in Sydney should be $30/hour.

    • Hey Jacob …. I think deep down you have the hots for Julia.

      Let it go …. she’s gone.

    • Decided recently that we Newie prols can well do without a high speed rail link to Sidnee. Population build-up in these parts is getting past a joke; infrastructure is showing signs of being overwhelmed by cars and such as it is. Ripping up the heavy rail into the CBD has not helped. Reminds me of the time when TPTB pulled trams out of part of the Melbourne CBD over 60 years ago and replaced them with buses…..for a while. And then what do you know? Back came the trams again. Thank Dog.

      • Europeans didn’t colonize the New World through brute force. They did so by turning one part of the population against each other. Cortes persuaded other tribes they could rule in place of Moctezuma, the English sold rifles to the Maori so they could better slaughter each other and the other inhabitants of the islands. The Dutch bought Manhattan for a piddling sum they paid to a tribe who weren’t the real tribal “owners” of the land.

        So today there are a few Australians who see great benefit in selling the country for a sum that might seem huge to them in the current context, but perhaps will prove to be the historical equivalent of a handful of beads.

      • I know plenty like this. My parents for example and all their buddies at the golf club. They go on group holidays together, playing golf around the world while the wives go shopping and see the sights. So many retired in their 50s, perfectly capable of still working, instead living off the rent of their tenants who are working like hell to pay that rent (and therefore fund the holidays).

  3. proofreadersMEMBER

    “… Douglas Driscoll, the chief executive of Starr Partners, estimates …”

    It is interesting that a real estate agent is telling us the story?

    Near me, a 5 bedroom house, with tennis court and pool, bought by Chinese in late 2015 has been empty ever since.

    • Yeah, a sudden outbreak of patriotic concern from a real estate agent is VERY surprising. Wonder how long he will remain employed?

      • He is a smart one. Early to realise that 10%-20% empty houses banked empty by foreigners = 10%-20% of houses that he won’t get a cracker’s worth of commission from either by sale or on the rent roll. In aggregate and over time this is a 10%-20% pay packet haircut. And haircut gets bigger and bigger as more houses are banked by foreigners.

      • Shrinflstion is what is worrying the agent. Hardly any stock to sell and more competition for fewer and fewer properties. It’s musical chairs eventually no seat to sit down.

    • Can you put a sign up out the front stating its a vacant property, or maybe let your dog poo in the front yard everyday?

      • Squatters welcome! Deep T’s kids should identify the empty housing stock and make it public as a modern day pitchfork.

      • Squatters and vandals would have done the job in the past. But modern security apartment blocks a bit of a challenge.

      • I’m talking houses, Dan. If I saw this happening in my hood, I’d put the signs up. Too bad there isn’t an app to monitor vacancies and scale up the shaming.

      • Who has coding skills to do a google-map driven log of empties? Or could this be airtasked/similar? What would it cost?

    • Someone should just move in and claim they are renting it. It would then take the owner, once they find out, 12 months of going through NCAT before you’d be forced out.

      • Great idea BUT it does suggest a foreign owner who is willing to accept the Aussie legal process as the ideal way to address this dispute.
        However given that the foreign owner is not easily open to either criminal or civil prosecution in Australia, it stands to reason that the foreign owner would be more willing to find solutions (to the squatter problem) that are outside the normal course of the Australian legal process. Think Snake-head gang members with baseball bats…..This solution would be easily arranged for and paid for in Shenzhen with a guaranteed outcome, it’s also probably cheaper than employing an Aussie lawyer.

    • Have you taken a piss in their pool yet?

      It seems kids are not what they used to be. In my day an empty house would have been turned into party central.

  4. This is the story that’s really got me.
    I’m ashamed to say I’m Australian
    How can those repulsive lying politicians live with themselves
    Do you think the Chinese would allow us to buy in their country
    No chance
    Vacancy tax

    • This country was stolen. Like most things stolen, it was never valued and is now being sold for a song.

      • Thing is but, if no one is there…squatters

        Seriously it would not be hard to spin up a WordPress site, add a submit-posts plugin (by public) that gets published as a post with each empty house a listing for squatters

        Or a dob-an-empty form where people can submit a suspected land banked place, some crowd source investigation happens, bang, place is listed for squatters.

        probably half a day’s work to set up

        I’d be happy to help

        Pity we can’t arm the squatters with some little snake charmers for self defence

        That should make Eureka Stockade look like a small fracas

      • haroldusMEMBER

        Indeed, and may I add – to lose one Prime Minister may be regarded as a misfortune; to lose three looks like carelessness

    • First reasonable response.

      Vacancy tax is just another distortion among plethora of others.
      If own laws are imposed, there would be no such problems.

    • Good question but the number is easily verified by the ATO as all of the state land title offices have been collecting since 1 July 2016 data on who is buying what and passing that information to the ATO to compile in their national land title database.

      Time for the ALP, the Greens, Jackie, Nick, Derryn and Pauline to start demanding information and action from Dud Malcolm.

      Some states are charging stamp duty surcharges on foreign buyers – including temporary residents. They have a fininacial interest in establishing identity and they are being rigorous according to friends who have recently purchased.

      It should not be difficult for the ATO to provide definitive numbers for the following:

      (a) Foreign buyers of new homes and apartments

      (b) Temporary resident buyers of new homes and apartments

      (c) Temporary resident buyers of existing homes and apartments

      Temporary residents should be immediately banned from buying existing property. Even though they are required to divest on departure that is not good enough. They should be restricted to renting property UNTIL they have obtained permanent residency. If they want to buy new property the purchases should be subject to the quotas and limits on Foreign buyers described below.

      The numbers of sales of new homes and apartments sold to Foreign buyers in any year must also be limited by the FIRB perhaps in total and by location. Construction capacity is limited and so are appropriate locations. When rental vacancy rates are exceed 4% on average in metropolitan areas then quotas on sales of new construction to foreign buyers may be relaxed and they can horde as many skyboxes as they like. e.g. In Perth and Darwin which have residential vacancy rates close to 5% – sales of new construction off shore is much less of an issue – though foreign interest is probably zero as well (they can smell a soft market too)

      The ALP and all the other opposition parties should adopt the above policies and start demanding release of the numbers by the ATO and action by the LNP.

      • Agree. Temporary residents should not be allowed to buy at all, or the old cap of $500,000 should be reintroduced (was removed by Kevin Rudd).

        The whole thing needs a serious crack down. Honestly believe the Liberals could turn their electoral fortunes around if they were willing to crack down on it hard. However, they are just FIRE puppets – the extent to which they are captive to FIRE interests revealed by the fact that they’d rather lose the election than fix this problem.

      • Um. How about making temporary residence status just a teensy weensy bit more difficult to convert to permanent residency status. And yes, no property ownership rights at all for temporary residents. Offer them decent government-sponsored low rise rental housing as an option, with rentals going to the public purse.

      • Jumping jack flash

        “However, they are just FIRE puppets – the extent to which they are captive to FIRE interests revealed by the fact that they’d rather lose the election than fix this problem.”

        you got it.

        And the sad, sad thing is (that people are slowly waking up to) that when the “other party” gets in because people are fed up with this one, the “other party” is beholden to the same masters.
        So we get the same policy but with an ever so slightly different flavour.
        Or rather, the same empty words, because there hasn’t been any real policy implemented for the best part of 20 years.

        This is exactly why there is a growing turning away from the Liblabs.

      • The NSW ,LNP govt. is wanting to privatise the Land Titles Office.
        I own to be suseptable to some conspiracay theories ,
        and this is one of them.

    • The Patrician

      +1 How about we start with the data? Like Kelly O’Dwyer should have 3yrs ago
      How many Sydney dwellings are owned by foreign nationals?
      Douglas Driscoll doesn’t know
      The FIRB don’t know
      Brian “god only knows ” Wilson doesn’t know
      Kelly O’Dwyer doesn’t know
      No one knows
      The appalling lack of data continues
      The sham continues

      • Jumping jack flash

        They don’t know because they don’t care.
        So long as the debt, or in increasingly rare instances, money, is transferred from buyer to seller it doesn’t really matter where it comes from.

        Someone won in the new FIRE economy, and that has to be a good thing, right?

      • TP,

        I am not guessing about the legal requirements to establish and record the status of every buyer – they are law and have been since 1 July 2016.

        I was monitoring the OSR records and noting the numbers of transactions but then the OSR pulled the data!

        The ATO definitely has the data – you just have to ask for it.

        Naturally, to save some dough I am asking the opposition and independents to do exactly that.

      • The Patrician

        We have legal requirements establishing that foreign nationals buying Australian dwellings must have prior FIRB approval.
        They are law and have been for the last 40yrs.
        It doesn’t mean those legal requirements have been enforced.
        Show me the data

  5. Shrinkflation is killing his real estate business; declining commissions and rent, and the Chinese bid has dropped off, so now he starts squealing. Australia…every man for himself.

  6. There’s another side to this coin that’s never touched on by MB, so lets consider it for one moment:
    Lets assume that the median Sydney house occupies a land area of 1/5 acre and sells for $1M. lets assume North shore land median price is $2M for the same 1/5 acre. So we have Chinese paying somewhere between $5M and $10M per acre for their slice of Australia.
    Now lets look at the alternatives: (Disclosure I’m not a farmer so I found these prices on a quick Internet search)
    From what I’ve found poor quality farm land sells for around $1K/acre while the very best quality sells for about $20K/acre. It seems like the average is around $5K/acre.
    If I’ve done my sums properly Chinese are paying 1000 times as much for the Median Sydney land as they would pay for the median NSW farm.
    Now consider this: IF our collective game plan is to sell off the country than which path yields the greatest return? we have a choice, we can sell land for $5M/acre or $5K/acre. Personally I’d take the $5M and laugh all the way to the bank, I’d move to somewhere like Port Stevens and start re-building the Sydney of my youth.
    If we continue to run Current Account deficits then we’re accepting that this must be financed through the sale of Australian assets, one of the popular asset classes is land, so we basically sell land to pay for our trinket’s. Given that selling our country piecemeal is our MO I’d rather sell 1/5 acre of the Sydney North shore than 200 acres of prime farm land. hey but that’s just my choice and clearly I’m in the minority.

    • CB,

      In theory that has appeal.

      In paractice the better solution is the old fashioned one practised by most of our sucessful trading partners.

      Dont sell residential and rural land in anything other than very limited circumstances and support your desired level of import consumption with trade not asset sales – real or financial.

      • I don’t have a problem with this, however, I’d suggest that there’s diminishing global demand for Australian mortgage debt (especially at sub 2% returns coupled with a negative Fx trend) and given our current extreme levels of private debt.
        that fact suggests only three paths forward:
        – Expanding Public debt (building infrastructure or just having a better party)
        – Selling Private or Public assets
        – Creating globally valuable business and selling them off to foreigners (yeah don’t make me laugh, if we’re lucky the foreigners will agree to sell us a slice of their valuable Aussie businesses (think: Aldi)
        Well there is the forth option that involves us earning our way in the world, but that belongs in the too hard basket, excepting the occasional foray into CAS territory that results from high external demand for commodities coupled with high unit price.
        Of course I’m leaving out the MMT choices that all lead (in my opinion) to a South American style default, I’m not wishing that sort of dysfunction on the country of my birth.
        My point is that Aussies have choices and they’re exercising their choices, which is great, but exercising these choices has follow-on consequences. There is no have your cake and eat it too option, unless you’re willing to back up THAT choice with some serious global muscle.

    • +1 – don’t care so much about cities, farmland is far more important to the future of this nation…

      • And that is why some home-grown Aussies are moving to secure a bit of land that they can work for themselves using technologies that might help them survive the eventual collapse or disruption of the fossil-fuel economy.

    • As a foreign government I would relish the opportunity to ensure that the customers of the goods I’m selling remain uncompetitive without a viable local industry. An easy way to do that is to exacerbate the cost of land and labour. I think it is subversive and our government is treasonous for not working in the national interest.

      • I’m guessing that you fully understand and accept the consequences of these proposed actions.
        IF Australia can’t pay for it’s imports than the country will suffer a full blown currency crises. (Think Russia in the late 1990’s)
        Do Aussie really have the mental, physical and political toughness to endure a currency crises that’s of their own making? (I don’t think so, not even close)

    • I’m absolutely on board with that concept CB.

      I’m also down with the concept of building an “Australian Ordos” somewhere out in the bush for the sole purpose of soaking up Chinese demand for empty houses. Why the hell not? They’d be down with it too.

      The issue is that we aren’t doing the part where we actually go and build something…

      The question is why not?

      • I’d have absolutely no problem with the “Australian Ordos” as you say, Why the hell not?
        They’d just need to understand that this investment in NO way entitled them to Australian residency.
        They get a building that they can show pictures of to their friends we get jobs building something that requires practically zero infrastructure and is 100% externally financed …how can you possibly loose? A true win-win project. That said, I guarantee you that many MB’ers would scream blue murder, They’d indignantly point out how pointless the whole undertaking is …as if life in general has a point! Oh and god forbid the project was successful, (even in the Ponzi sense) than MBers would truly find reason to scream that this fantastic opportunity was not even 1% Aussie owned.

      • For sure, it’s a win-win. Even in the most extreme case, that we allowed Chinese workers to come here and build the place using Chinese materials, as if it were a little portal to China in the middle of Australia, it would STILL be a benefit to us because it would remove the Chinese demand from existing cities where it’s causing economic and social problems.

        Who knows, it might even end up well populated and kick-ass. If it doesn’t and ends up being a ghost town then so what? A big fat waste of resources but at least nobody gets hurt. Probably a pretty cool tourist attraction.

        So why doesn’t it happen? Opinions? My best guess is a mixture of incompetence, red-tape, and the fact that the powers that be are actually benefiting from rising city prices, love the Chinese bid and don’t want things to change, damage to the poorer Australians be damned.

  7. The Patrician

    There is no one cause that carries more blame for the Syd/Melbourne price explosion than the complete and abject failure of the FIRB to enforce the FIRB laws
    Brian Wilson should be prosecuted for fraud

  8. I remember before the 1987 stock market crash they were saying the reason markets are climbing relentlessly was because of “weight of money” of people’s savings looking for a home, Similarly, all the collapsed housing markets on the planet including Perth and Darwin, for instance, had “growing populations” causing the “weight of money” syndrome.
    We’ll see how long that syndrome holds up on the south-east coast of Australia, ah?

    • Jumping jack flash

      So long as debt remains cheap, and there is debt capacity, or there are foreigners looking to shovel money into Australia (either real money or debt, it doesn’t matter because it is all treated the same at the shops) it will continue.

      • Cheap debt doesn’t make an investment viable if you cannot get tenants or customers for your product.
        Look at all the other markets with collapsed housing – they all still have cheap debt!
        Perfect examples: Vancouver, Japan, U.S., Darwin.

    • It can last a long time as it is mandated by policy. As MB has shown multiple times, the Australian government see as its job to grow the bubble. Malcolm Turnbull took the bubble to the election and won.

      Only way it stops is by an external shock which will cause liquidity to dry up at same time as demand for commodities drop.

  9. Funny all the other bubbles popped with or without “mandated” guvnuts policies, ah?
    But hey, Straya is different – our south east coast is invincible, we have kangaroos!

  10. The real question is. How many are purchased illegally? and the governement has done nothing.

    • nexus789MEMBER

      You think they were going to do something? Just a ruse to make the sheep think someone was looking after their interests.

  11. gballardMEMBER

    To me the Vancouver Solution is a good step forward. Tax all dwellings which remain empty for more than say 6 months with a flat 1% of the appraised improved capital value as per official valuations. Repeat as necessary(and maybe increase the tax) and if not paid after two terms put a caveat on the dwelling in order to recoup on sale or from proceeds of letting whenever. Clearly there would be scope for some exemptions or time extensions if clearly worked out e.g. occupant moving into a nursing home

    Not against the inclusion of the foreign purchasers tax – maybe an exemption if lived in after purchase – open to debate here.

  12. Gavin HegneyMEMBER

    I have seen 5 major cycles in 40 years , and what I have learned is that just when the story is so good that it will never end , that’s the top .
    Also ,
    Foreign buyers are leaving vacant because only new property , or property never occupied can obtain FIRB approval , hence purchased , or should I say repurchased .