In the wake of the Global Financial Crisis, Chinese investors have emerged as one of the key factors in the performance of property markets around the globe.
Nowhere is this more apparent than in Australia, a country whose status as a stable, first-world Anglosphere economy makes it particularly appealing to Chinese nationals seeking to acquire assets abroad or emigrate.
According to figures from commercial realtor CBRE, the source of global investment flows into Australia has undergone a wholesale inversion in just the past two years. Asian capital now comprises two third of total property investment in Australia from abroad.
While an unprecedented 15-month run of low interest rates has undoubtedly made a contribution to surging real estate values in Australia’s major cities, which have seen the price of Australian residential property rise by 9.3 per cent nationwide in the 12 months to September, unchecked foreign investment is just as likely a culprit.
The October Property directions survey released by the Australian Property Institute found that a stunning 96 per cent of respondents in Sydney believe foreign investment was a significant driver of the city’s brimming property market.
A widely cited Credit Suisse bank report estimates that Chinese investors and other recently arrived immigrants have spent $24 billion on Australian residential real estate over the past seven years, with that figure set to nearly double to $44 billion over the upcoming seven years.
Other factors abetting Chinese investment in Australian property have been the country’s comparatively loose rules on foreign investment along with the lax hand of the Foreign Investment Review Board (FIRB), which has recently come under fire from CBA chief economist Michael Blythe and Coalition MP Kelly O’Dwyer for its failure to properly monitor monitor foreign investment.
Some popular target markets for Chinese property investment have begun putting up barriers to the foreign acquisition of domestic real estate.
In Singapore, one of the most popular migration destinations for Chinese nationals, foreigners are prohibited from purchasing private residential property and must pay a 15 per cent stamp duty on apartments in approved buildings. Neighbouring Malaysia introduced the requirement this year that foreigners purchasing property valued at more than $330,000 must first obtain government approval.
Canada, another magnet for Chinese migration, took the bold move earlier this year of axing its 28-year-old Immigrant Investor Program, which gave preferential treatment to affluent applicants who possessed at least $C1.6 million in net assets and were willing to lend the Canadian government $C800,000 for a period of five years on an interest-free basis.
At the time of its annulment in February, the program had a backlog of 65,000 applicants, of whom 45,500 were mainland Chinese.
The decision coincided with reports that Canada’s residential property market was amongst the world’s most expensive, with The Economist saying that housing in the country was 76 per cent overvalued against long-term averages on a rental basis and 31 per cent against disposable incomes.
Australia may soon be subject to similar restrictions, given the aggressive remarks recently made by Coalition MP Kelly O’Dwyer on the issue of foreign property investment.
O’Dwyer is currently chairing a federal inquiry into foreign ownership of Australian housing and its impact on affordability which is set to deliver its report to Treasurer Joe Hockey this month. She told 2GB Money News last month that FIRB had been “asleep at the wheel” when it came to foreign property investment in breach of regulations.
The Coalition MP raised the possibility of harsher punishments for foreign investors, as well as expanding the scope of penalties to encompass realtors and related professionals.
“At the moment the only penalty is on the purchaser, but we need to catch estate agents, lawyers and accountants involved in trying got contravene the foreign investment laws,” O’Dwyer said.
For those fretting about the impact of foreign investment, and Chinese investment in particular, on Australia’s overheated property markets and the affordability of its housing, such measures could not be more welcome or timely.
Simon Smith, Savills’ Hong Kong-based research director, said last week that Beijing is expected to further loosen policies governing foreign investment in October, which could soon unleash an even greater flow of funds from China to markets abroad.