Stay out of Sydney

Property hotspot: Australia

A recently published study found that only 18% of Sydney respondents think that foreign ownership of local real estate should be allowed, and that 64% blame overseas investors for pushing house prices so high.

By foreign, the respondents primarily mean the Chinese.

The report, by Dr Dallas Rogers at the University of Sydney, was published by the journal Australian Geographer late last month and picked up by real estate website Domain.

Anecdotally Australians have been blaming the Chinese for the rapid rise in the price of real estate in their major cities for some time. But this is one of the first studies to quantify the sentiment, with a survey of 900 people conducted from November 2015.

Further down the list in factors thought to be responsible for higher home prices were low interest rates, planning issues and local investors.

Other surveys have offered a more nuanced view of how the Australians regard the Chinese. Sydney think tank The Lowy Institute also takes Australia’s temperature on a number of international issues every year. Recent findings are that more Australians now rate China, and not Japan, as their country’s ‘best friend in Asia’ (30% versus 25%) and have generally positive perceptions of Chinese culture, people and food.

However, the Chinese authorities score much more poorly with 73% of respondents concerned by the country’s system of government. Anxiety about Chinese investment in Australia is high as well, with negative sentiment from 59% of respondents.

A 2016 Working Paper from the Australian Treasury, a key source for Dr Roger’s paper, said that Chinese investment is one of several factors pushing up house prices, and that the majority of the growth isn’t attributable to increased foreign demand.

Excepting accommodation for foreign students, international buyers can only purchase new dwellings, not established houses or apartments (although there are said to be various workarounds).

Housing affordability concerns have reached fever-pitch in Australia’s eastern cities. In Sydney house prices rose by 45% between 2012 and 2015 and the median price of a home isn’t far from A$1 million ($738,246). Even “entry-level” houses cost eight to 10 times the pre-tax incomes of younger people, as opposed to the three times of three decades ago. In the same period Chinese investment in Australia rose by over 900% and Chinese migration has risen fast too, with 300,000 arrivals between 1981 and 2016, according to the report.

Foreign buyers make up just 14% of the property market in Australia. However, the survey found that people were twice as likely to blame international investors for unaffordable house prices. Another problem is mistaken identity. “In many cases, people who are buying established homes are actually Chinese-Australian citizens but people are going to auctions and accusing them of being Chinese investors,” Rogers told the Australian Associated Press.

China is the fifth-largest investor in terms of total investment in Australia and far below the US, but it was the largest investor for 2015 and 2016 with a focus on direct investment in property and agribusiness. Two-way investment between the US and Australia is largely portfolio-based.

WiC has reported before on the uncertainties facing Chinese companies hoping to buy Australian assets, where the approval process can be fickle. Public sentiment on large-scale takeovers of Australian land and businesses, however, errs on the conservative. Reports of ‘black money’ flowing into Australian property since Xi Jinping’s crackdown on corruption have done little to improve local perceptions. Checks at financial institutions are supposed to flag money laundering but due diligence by real estate agents doesn’t reach the same levels.

A recent story in the Australian Financial Review noted that 35% of the buyers of a new apartment block in Melbourne had paid cash, for instance, with the newspaper noting “a surge in suspicious property transactions last year”.

Australian financial intelligence officials investigated more than A$3.3 billion of suspect transfers by Chinese investors in 2015-16, it said, including A$1 billion in the property sector.

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