Rich Chinese investors are buying up almost one-fifth of new housing built in Sydney as part of a $5 billion annual outlay on Australian real estate which is pushing up prices and will ultimately change the way property values are calculated.
Chinese buyers now account for 18 per cent of new home purchases in NSW and 14 per cent of new dwelling supply in Victoria, research analysts at Credit Suisse have found.
An estimated $5.4 billion is being spent each year on Australian residential property by a mix of Chinese new settlers, temporary residents, developers and investors, Credit Suisse analysts Hasan Tevfik and Damien Boey said.
Already there are 1.1 million millionaires in China who "can easily afford to by an apartment in, say Chatswood - an upper-middle class area of Sydney," the report said, and there will be 1.5 million by 2020.
"We forecast Chinese buying power will increase as the economy develops and the population becomes wealthier," the analysts said. "They purchased $24 billion of Australian housing over the past seven years; we forecast they will purchase $44 billion over the next seven, to 2020."
While Chinese purchases account for only 12 per cent of new housing supply each year on a national basis, buyers are concentrating on Sydney and Melbourne, with the result that house prices are rising faster than local incomes.
Citing international Demographia research that shows Sydney and Melbourne are the fourth and fifth most expensive big cities globally in terms of house price to income ratios, the Credit Suisse report said a generation of Australians is being priced out of the market.
"While the Chinese may not be a major player in the national housing market, they are clearly a much more powerful force in Sydney and Melbourne," Credit Suisse said.
Sydney and Melbourne are now part of a global marketplace for Chinese investors who consider property in those cities alongside New York, Los Angeles, Vancouver and London.
In that marketplace, decisions are influenced by exchange rates and foreign investment policies; the report notes that Canada recently decided to end its Significant Investor Visa system, which was similar to the current Australian policy that gives preferential visa treatment to those investing $5 million or more in the country.
"The emergence of the global property investor means that valuation methods like house price to local income ratios are becoming obsolete," the analysts said.
Credit Suisse warned that Sydney is likely to resemble London in the future, where well-paid investment bankers struggle to buy a house because wealthy individuals from the Middle East, Africa and Europe have bid up prices.
"And both the UK and Australia have their borders open to new immigrants, especially if they are rich," it said.
While prospective home buyers might despair, the analysts suggest there is a way to benefit from the phenomenon by investing in the companies that stand to benefit from the increased Chinese interest: developers, building materials companies, property websites and banks.
Mirvac, Boral, CSR, National Australia Bank, REA Group and Fairfax Media were among those stocks named in the report, which also noted the possibility of a Chinese entity taking over an Australian developer.
Four ways Chinese investors can buy property in Australia:
1. Chinese citizen or temporary resident buys new dwelling with Foreign Investment Review Board (FIRB) approval.
2. Chinese citizen temporarily residing in Australia buys established house - only one dwelling allowed (includes Significant Investor Visa).
3. Chinese citizen can buy residential property for redevelopment with FIRB approval.
4. Recent Chinese settler in Australia can buy property for investment or residential purposes. FIRB approval not needed for permanent residents.