From Sam Jacobs at Business Insider comes yet another report on the torrent of Chinese money flooding Australia’s property market:
New restrictions on foreign investors are unlikely to stop the flow of housing demand from China, according to Credit Suisse analysts Hasan Tevfik and Peter Liu.
And crackdowns on capital outflows by Chinese authorities appear not have slowed China’s appetite for Australian property, the pair say.
The latest numbers are based on state tax revenue data obtained by Tevfik and Liu in March through a Freedom of Information Request.
“We calculate foreign buyers are acquiring the equivalent of 25% of new housing supply in NSW, 17% in Victoria and 8% in Queensland. Almost all of this is from China,” the analysts said…
Nearly a third of new housing stock being built in NSW is being bought by foreigners. Obviously not all of that is for new dwellings, but the vast majority would be…
After concluding that China’s crackdown doesn’t appear to be stemming off-shore capital flows, Tevfik and Liu also noted that Chinese investors are cashed up and ready to spend.
There are currently 1.6 million US dollar millionaires in China, and that converts to shared wealth of a whopping $13 trillion – around twice the size of Australia’s housing market.
“As our property market becomes more global perhaps we should be concentrating less on Australian incomes as a measure of buying power and more on wealth creation in the Asian region,” the analysts said…
In summary, the two analysts dispute recent reports suggesting foreign investor demand will slow. On the contrary, “we forecast these flows to continue at a strong pace and will serve to cushion the downside in activity and prices”, they said…
“The foreign buyer has never before been as an important driver of the Australian housing market as she is now.”
This report follows another published in The AFR in August, which claimed that Chinese cash buyers are flooding Melbourne and Sydney property:
Real estate agents report unprecedented numbers of overseas’ buyers of residential and commercial property in Melbourne and Sydney paying cash…
An estimated 70 per cent of Chinese buyers pay in cash, according to Transparency International, an international non-government organisation targeting corruption.
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How much of this money is illicit and what is the federal government doing to stem the inflow?
The first part of the question was answered by the global regulator of money laundering – the Paris-based Financial Action Taskforce (FATF) – who in 2015 released its mutual evaluation report, which found Australian homes are a haven for laundered funds, particularly from China. In June this year, FATF also placed Australia on a watch list for failing to comply with money laundering and terrorism financing reforms.
With regards to the second part of this question – what is the federal government doing to stem the inflow? – the answer appears to be “nothing much”.
Legislation to implement the second tranche of AML legislation covering real estate gate keepers has been gathering dust in Canberra for a decade.
Accordingly, realtors, lawyers, accountants and other real estate gate keepers are currently exempted from AML requirements. And this exemption has provided an easy avenue for foreign buyers to launder funds through Australian property, no questions asked.
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Sure, the Australian Government is currently undertaking yet another consultation on implementing the second tranche of AML legislation, and has promised to finalise the new rules by the end of this year. However, the Government set similar deadlines 2008, 2010, 2012 and 2014, all of which failed to deliver legislation.
Moreover, as reported in The AFR in August, any reforms are “expected to fall short of extending existing laws to cover real estate agents”.
As I noted a few months back, it seems lobbying pressure from industry rent-seekers is largely to blame for the lack of political action. Just consider “Highrise” Harry Triguboff’s comments in July in The AFR regarding Chinese buyers:
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“The problem with Australians is they are very slow. They ask their lawyer, they ask their financial adviser, they ask their family, they ask everybody. The Chinese don’t ask anybody, they come off the plane, buy their unit and go.”
In other words, we can’t have proper checks because that would slow down Highrise Harry’s sales.
By failing to ratify the second tranche AML rules, as promised more than a decade ago, the Australia’s Government remains complicit with the dirty foreign money flooding into Australia’s homes and robbing young Australians of a housing future.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
