Chinese buyers not to blame for rising property prices
There has been much debate as to whether Chinese property investors are the ones to blame for pushing up Australian property prices. However, according to new research, Chinese investors are not to blame for the rising property prices, particularly in Sydney and Melbourne.
This new research suggests that just 2 per cent of all transactions within 2014 were made up of offshore Chinese purchasers. With such a low percentage, it’s hard to believe that Chinese offshore investors are the cause of increasing property prices.
According to Hans Hendrischke, the University of Sydney professor and author of the research, “It’s so low that it would be hard to argue that this is driving the affordability crisis in Australian real estate”.
In order to come to his conclusions, Dr Hendrischke compared the value of all residential property sales against statistics from the Foreign Investment Review Board (FIRB). This allowed him to calculate the impact of Chinese buyers on the local housing market.
Dr Hendrischke relied upon data from the Australian Bureau of Statistics (ABS) as well as CoreLogic RP Data, and from this data he estimated that $270 billion of residential real estate was sold nationally during 2014.
When compared to FIRB approvals, which applies to both new and established housing, he predicted that the number of Chinese property purchases came to a total of “around the 2 per cent mark”.
Upon presenting his findings at the Festival of Urbanism at the University of Sydney, Dr Hendrischke stated “don’t blame the Chinese”.
According to the 2013-14 report from FIRB, China was the largest source country for approved proposed investment in 2013-14, accounting for $27.7 billion and this was mainly driven by a large increase in residential real estate approvals. Over $12.4 million of investment was accounted for by real estate.
According to Dallas Rogers, an urban studies lecturer at the Western Sydney University, “There’s now substantial evidence showing the housing affordability problem is largely an historical home-grown problem”. He also suggests that this “2 per cent” figure was “overstated” as this figure was based on approval and not actual property purchases.
Dr Rogers believes that Australia’s housing affordability has very little to do with overseas buyers and instead domestic situations are at fault. The affordability issue was already a concern before the most recent surge of Chinese investment. “If we turned off foreign investment from China… it would not address Australia’s housing affordability problem,” Dr Rogers said.
In order to address the housing affordability issue, the focus should turn to Australia’s taxation policies, supply and population growth.
As well as this figure being based on approvals, the research also does not take into account the potential impact of illegal purchases by foreigners, which is being fuelled by the strong house price growth, particularly in Sydney and Melbourne. This illegal activity is currently being investigated by the Federal Government.
Interestingly, residential developments built by a Chinese developer often sees most of its sales (often up to 80 per cent) from offshore buyers, whilst a residential development built by a local developer is more likely to see a smaller percentage of offshore buyers, more like up to 30 per cent. This is particularly true when developments are within a Chinese community, such as Chinatown or Chatswood in Sydney. These ethnic groups prefer to stick together and live within their own community.
These figures are based on research from Sha Liu, a student at the University of Sydney who is currently writing a PhD about Chinese buyers and global real estate markets.
Even though overseas Chinese buyers were the largest overseas investor during 2013-2014, this investor activity might slow down due to banks tightening up on its borrowing restrictions on foreign loans. Earlier this year, Westpac told more of its mortgage brokers that applicants needed an Australian address in an effort to tighten up its lending to foreign purchasers.
The economy also has a part to play in the rising property prices which in turn affect housing affordability, making it harder for first home buyers in particular to purchase their first property. However, with the Aussie dollar falling in value, it will make investing in Australia much more attractive to foreign investors, so time will only tell whether the number of overseas Chinese investors will increase in Australian real estate over the coming year.
Published on 12th of October 2015 by Marty Stanowich