We love Australia’s multi-ethnicity, tolerance and openness to other cultures – it’s the nation’s greatest strength. So alarm bells go off when we see headlines and stories like this in the mainstream Herald Sun newspaper.

It’s not racist to point out these home truths

At some Melbourne and Sydney schools, Australian-born children are outnumbered 10 to one by newly arrived Chinese students. Sometimes there are only a handful of other non-Chinese-speaking kids in each class. Signs in local shops are in both Chinese and English, suggesting that many new residents can’t speak our language.”  Susie O’Brien, Herald Sun June 10, 2015

Well, actually, we think it is racist to single out Chinese migrants without acknowledging the broader foreign investment issues, the challenges facing regulators in that regard and the fact that Australia is a multi-ethnic country that both encourages and needs migration.

Here are our top five reasons.

1.       It puts a ‘Chinese face’ on a complex economic problem

The property bubble is due to a massive upsurge in foreign property investment from many nationalities due the collapse of the resources sector, the falling Australian dollar, and low interest rates necessary to prop up an economy on the cusp of recession.  Globally, wealthy people are switching capital from resources into property.

In Australia, Chinese nationals accounted for 16% of  the $74 Billion foreign property investment approved by the government in 2013-14 (the most recent FIRB figures available).  Chinese nationals invested big money but so did people from many other countries.

The central problem is the scale and suddenness of the current inflows from all foreign sources, combined with a low interest rate environment, which is enabling Australian investors to try to keep up. This ‘perfect storm’ is driving property inflation not Chinese investors.

2.        The not in my (elite) back yard factor

Chinese investors in residential property are highly selective. They are dominating the market in elite suburbs, mainly in Sydney and Melbourne.  And this, we suspect, is what is driving the angst: the influx of Chinese money is disrupting the status quo.

3.       Australia is a multicultural nation and should know better

Australia always has had suburbs dominated by particular ethnic groups.  ABS data shows suburbs that are predominantly Anglo saxon, Greek, Italian, Indian, Vietnamese, Lebanese and so on. No one gets alarmed when migrant groups ‘’take over’’ outer suburbs or help gentrify down market suburbs. The difference is that the Chinese can afford Australia’s best and wealthiest suburbs and are snapping up properties at the top end of the market

4.       What’s so bad about people speaking Chinese?  

There is nothing unusual about migrants to Australia not being able to speak English well, or about businesses and schools catering to people who don’t speak English.

Many Australians  find it confronting to deal with languages other than English but this is an outdated attitude.  Rather that complaining about Chinese speaking students in our schools, let’s start teaching Mandarin in public schools and welcome opportunities for our children to become bilingual in English and Mandarin. It might come in handy.

5.       It disrespects the value to the economy provided by Chinese investors

Australia has always benefited from foreign investment in property and Chinese capital is helping to create new housing stock and jobs. On one hand the government is courting foreign investment – our economy needs it – on the other, little is being done to make Chinese investors and migrants feel welcome.

The property bubble and the suddenness and scale of foreign investment in residential property is a serious and complex issue.  Let’s not distract from constructive debate by making it about race.

For more analysis  and detail regarding foreign investment, see Chinese nationals aren’t the only foreigners splurging on Australian property

 

 

Over the past 12 months there has been much debate regarding the impact of Chinese investment on residential real estate. 

In one corner we have Simon Henry, CEO of Juwai, the Shanghai -based Chinese property portal, arguing that Chinese investment is propping up our economy and warning against tighter rules;  “At a point when foreign investment is needed, extra restrictions are being put in place”.  He says that negative publicity singling out China is widely reported in the press there.  “We see a lot of politicians in Australia saying that they are looking to review and stop Chinese investment specifically, as opposed to foreign investment.  “It seems to be a dual message being given, that ‘Yes, we want your investment, but we are going to criticise you if you do invest’.”

In the other corner commentators, including Clive Hamilton of the Australia Institute, warn that cash pouring in from China is making housing unaffordable for ordinary Australians: In  a controversial article last year he said “Every weekend in Sydney, young Australian couples are turning up at auctions excited at the prospect of finally owning their own home, only to find that other bidders are wealthy foreign buyers with money to burn”. 

Since then the majority of media on the issue has focused on Chinese investment, neglecting to note that Australia is a very attractive destination  for foreign property capital in a shaky global economy.  

But are Chinese buyers really that dominant in the market?  We took a look at the Foreign Investment Review Board (FIRB) data – this  only covers approvals for investment but is still one of the best data sources available. 

FIRB approvals for Chinese national investment 16% of total

The most recent FIRB report (2013-14) shows that buyers from many nations are investing in Australian property, with billions pouring in from around the world.  

Total foreign investment in property 2013-14 was $75 Billion, $35 Billion of which was for residential property.   Chinese property investment was 16 percent of the total, at $12 billion and double the next largest nation (USA at $6 Billion). Singaporeans invested $4 Billion, Canadians $3 Billion, and Malaysians $2 Billion.   Unfortunately, the FIRB does not publish the break down of residential property investment by nationality.  A  Credit Suisse Report, however, has estimated Chinese residential property investment over the period at $9 Billion. 

Capital has switched from resources to property – this is a global trend as wealthy people seek safe havens for capital

It’s sobering to compare the ratios of investment across sectors of the economy and the dramatic switch to real estate.  A few years ago most foreign investment was going into mining. Post the collapse of resource markets, money is pouring into property as a safe haven for capital.  The figure below shows that at the height of the resource boom in 2008-09, property investment was less than $10 Billion compared to $90 Billion for mining.  In 2013-14  mining was down to $20 Billion,  compared to $75 Billion for property.  If nothing else, this shows why our leaders are conflicted about how to handle the situation. 

 

The switch of Chinese capital from mining to property shows the same pattern.

 

In future years, analysts predict that the Chinese share of total foreign investment in property is likely to grow.  Credit Suisse projects a further $60 billion over the next six years.  

Australia needs new housing stock but it also needs citizens to be able to afford to live close to major work centers – in this context, Chinese national investment in Sydney and Melbourne may lead to structural problems

In Sydney and Melbourne, Chinese demand now accounts for more than 30% of total new supply. In some preferred suburbs, it is overwhelming. 

Sydney Real estate Agent,  Amy Baxter,  says in some inner city locations Chinese demand accounts for more than 95% of new stock.  “Buyers acting for Chinese investors are queuing up for releases;  I can’t see any sign of a slow down”.  She says some apartments will be left empty by absentee owners.  “Many of the buyers don’t care about rental income – they don’t need the money and they don’t want any hassle from tenants”.

A perfect storm for property inflation – low interest rates plus massive foreign capital inflows

Notwithstanding the economic stimulus, it’s government’s role to consider broader impacts on society.  The main problem for the government and the Reserve Bank is that ordinary Australian’s are trying to keep up with foreign buyers.  The low interest rates necessary to simulate an economy on the cusp of recession are enabling people to take on unsustainable levels of debt. 

When the fear of missing out trumps the fear of crippling mortgage payments, statements by the Treasury secretary, John Fraser,  that Sydney and parts of Melbourne are in “unequivocally in a property bubble”, or by the head of the Reserve Bank, Glenn Stevens that Sydney house prices are “crazy” only add to the general anxiety.

What to do? If you are an investor with borrowing capacity, punting on further gains on the back of foreign demand is tempting.   If  you already own your home, you could settle back and enjoy the capital gain – as our PM, Tony Abbott  famously said, “I’m happy the value of my home is going up”.  If you are trying to buy your first home, or to rent close to work  in our major cities, its tough and likely to get tougher.

Sooner rather than later, the government must address this. Concern about property inflation and housing affordability is flushing out the usual arguments around negative gearing, lending rules, super policy and other policy applying to domestic investors. Let’s hope the noise generated does not distract policymakers from dealing constructively with the issue.

A few things seem clear:

• The central issue is better regulation of foreign property investment, so let’s stop making it about nationalities.
• Foreign investment is creating jobs and funding new housing stock – policy makers need to find away to make that stock affordable to citizens
• Australia has always benefited from foreign investment in property – the problem is the scale and suddenness  of the current inflows, combined with a low interest rate environment. This ‘perfect storm’ is driving  property inflation.
• Chinese  investment is dominant only in some suburbs.  Australia has many suburbs dominated by particular ethnic groups.
• Australia has always benefited from capital brought in by migrants and from the cultural and intellectual diversity they contribute to society –  whatever is done to regulate foreign investment in housing let’s not make it a barrier to migration.

We eagerly await the FIRB’s report for 2014-15.

It’s a world of pain out there! We talked to hundreds of home buyers, property investors and some realestate agents too (they also buy property!). These are their top ten hates. Please let us know if you think we have it wrong!

Number 10: Driving round every Saturday looking at properties that don’t resemble the ads and photos

Number 9: Trying to assess properties at crowded open for inspections

Number 8: Hours or research investigating dozens of possible properties/difficulty finding the information you need

Number 7: Realestate websites that won’t let you filter out irrelevant properties 

Number 6: Agents not getting back to you (do they think you can’t afford it? Have they already sold it? Are they messing with your head!?)

Number 5: Agents not revealing that a deposit has already been taken on a property (keeping you on the hook till contracts have been exchanged)

Number 4: Paying for property inspections and then being outbid by ridiculous amounts more than what the agent quoted

Number 3: Auctions – everything about them (this deserves a list in itself!)

Number 2: Being sure you’re paying too much and equally sure you can’t afford not to buy something!

Number 1:  Not being able to tell your friends and family about a great property you’ve looking at in case they beat you to it (yes, it really happens!)

After decades of argument, procrastination and deeply democratic consultation, Sydney is finally moving ahead with its urgently needed second airport.  Located at Badgery’s Creek  in Western Sydney, the airport will drive social and economic change in the local area and underpin growth in Sydney and NSW in general. Work has commenced with the airport planned to be operational in the mid 2020s.

As a state-of-the -art hub for air freight, the airport is expect to enable new export oriented and internationally facing businesses in the Southwest Growth Centre and Western Sydney Employment Area.

Sydney’s existing airport, located in inner city Mascot, is subject to highly restrictive noise curfews.  While some citizens are concerned about the impacts of aircraft noise from Badgery’s Creek, the noise corridor has largely been preserved from development so the airport should be able to operate 24/7 without significant impact on amenity.

The benefits in terms of transport logistics and general economic efficiency are immense.  The city fringe location will help solve Sydney’s chronic transport problems, enabling the redirection of freight and Western Sydney business traffic away from the city centre.

Western Sydney is already Australia’s largest manufacturing region with around 8,500 manufacturing companies generating approximately $13.5 billion annually.  If everything goes to plan, the new airport will  help these firms and firms entering the region to achieve new levels of productivity.

While all of Sydney will benefit from the economic boost, it is anticipated that higher value employment opportunities in the area will have flow on effects for local communities, improving both the quality of housing and the general standard of amenities.  In anticipation of the increased activity and population, the State and Federal Governments are funding new road and rail infrastructure and a suite of major urban development and growth programs. 

Over the next decade it will be interesting to monitor how social change and gentrification driven by the airport impact Western Sydney property and to see which locales benefit the most. Western Sydney has always been overshadowed by the beauty of Sydney Harbour and the coastal suburbs but it has many attractive natural features, including spectacular parks along the Nepean River and in the Great Dividing Range, which borders the district.  

Significant capital gain has been seen over the past 12 months right across the West, particularly along the existing rail corridors.  To the North of the airport site, Mount Druitt, which currently suffers from high unemployment and relatively low housing standards, has seen a 20% annual increase in median price.  To the south, the posh, rural residential Camden – a locale noted for private estates  – has achieved a 16% annual gain in the same period.  These gains, of course,  are in the context of a generally hot Sydney property market so the real test will come when the market cools down (surely it must at some point!).