The Influence of China on Global and Australian Housing Markets
Abstract.
This Working Paper1 attempts to explain the recent phenomenon of foreign investment into
Australian property markets, with a focus on China.
Firstly this paper looks at the current emergent effects of China as a leading global economy,
soon to regain the mantle of the world’s largest economy. A place it last held in 1847.
China is now the world’s largest trading power—and, by 2030, it is likely to be the biggest
economy. The role of China, and other investor countries, is investigated from the perspective
of potential long run stability of economic growth patterns.
Secondly the paper looks at the rise of the Australian economy on the global stage. How does
the rise in overseas investor opportunities effect Australia? How will our economy
accommodate the rise in property investment? And how does Chinese investment differ from
other countries. Unaffordable global cities are experiencing dramatic house price rises.
Attempting to discover the effects of investment in other countries this paper looks at issues
of foreign investment in Vancouver, where the Canadian government has closed its investor
stimulus schemes upon evidence of market distortion. What correlation does this have in
relative terms to Australia’s property market and Significant Investor Visa Program (SIV)2?
Thirdly an argument is drawn that Chinese investment has rapidly overtaken estimations in
both quantum and effect. Does the Australian government have adequate regulatory
oversight? The macro-economic effect of Chinas relationship with Australia is unique, and
likely to influence socio-economic conditions in this country in a significant way. Does
Australia have a political will to change policy settings given that recent reports suggest that
the Australian political class have substantial property portfolio’s which would appear to
benefit from property price rises in overstimulated markets.3i
Background
The scope of this paper is to discover evidence and quantum data relative to institutional and
private funds invested in Australian markets at this time and to investigate the rise of wealth
in China which will lead to further spikes in capital investment. Bringing together the central
issues of the growth of China and the safe haven nature of asset wealth in Australia, will posit
evidence of continuing market growth in Australia, and how this could be managed visa vis
social and economic outcomes for Australian citizens.
1
The findings and comments in this working paper represent the writer’s personal views in respect to research
and inquiry, and based upon evidence as acknowledged in the footnote and endnote systems.
2
The Reserve Bank commented on the $1.3 trillion Australian mortgage market and the amount of money
which is “flooding the property market. “Reserve Bank takes aim at mortgages: don’t fuel more home lending,
it warns”. The Australian Newspaper. 28 August 2014. Business Section.
3
Aussie politicians’$300 million in property portfolio. (Macro Business).226 politicians from all sides of
parliament have an ownership of 563 properties (an average of 2.5 properties per member) conservatively
valued at $300 million.
The likely threshold for formal approval on Chinese investment in Australia will be raised to
AU$1 billion, in line with the agreements the Prime Minister, Tony Abbott, has reached with
Japan and Korea. Additionally Australia is urging China to forge a Trade Agreement on
Finance with a view to enabling a “financial currency exchange hub” to operate in Sydney.
The exchange would become a “trading point” for the Chinese Yuan. Both these issues
critically impact on foreign investment in real estate in Australia.
In 2008, the Australian government responded to the Global Financial Crises (GFC), and
housing market crashes in United States and Europe, by relaxing rules on foreign investment.
Australia is increasingly becoming an appealing place to invest. The momentum of change in
China is unprecedented. Global institutional and international investors rank Australia as a
premium host investment nation.
In 2012 the Australian Government introduced The Significant Investor Visa Program (SIV).
This program allows Chinese and other foreign entities and agencies to invest AU $5 million
in approved managed funds or cash assets on application4. Upon approval the investor is
granted a visa and permanent residency. Direct investments in housing and exchange listed
companies may not be included in the AU$5 million, and may be deemed additional to the
AU$5 million thresholdii. By the end of May 2014, 1446 expressions of interest, 945
applications and 343 SIV grants had been issued. If all applications were approved there is a
potential for AU$4.7 billion investment into Australiaiii.
This issue will become a focal point for a recent visit to China by the Australian
Government’s House of Representatives Economics Committee to investigate Chinese
foreign investment in Australian real estateiv. The Committee findings will be delivered in
October 2014.
Post GFC, Australia’s economy did not implode the way Western developed countries’ did,
in no small part due to Chinese demand for Australia’s natural resources, and specific
government stimulus measures. By 2010, housing prices had risen nearly 30% annually in
Melbourne and 15% in Sydney. Over the past two years, as the mining and resource boom
has receded, the rise in new housing, and foreign investment, has stimulated many sections of
the Australian economy, increasing employment, building, and resource opportunities.
More recently, the rise and influence of China in global real estate markets is likely to be an
area of political economy that has considerable public interest in Australia. Policy settings
will take account of the domestic and commercial aspects of foreign investment in this
country. Concomitantly, Australia’s social and economic strategies will adjust to market
pressures. Australia’s low interest rate policy acts as a continual market stimulus.
The Reserve Bank of Australia (RBA), the Foreign Investment Review Board (FIRB), and
the House Economics Committee have been undertaking public hearings in respect to this
4
The invested funds then remain in Australia for four years and the applicant is required to spend 160 days in
Australia over four years before gaining an automatic right for permanent residency. As of 1 May 2014 there
had been 1446 expressions of interest, 928 applications and 225 SIV Grants. The Australian government has
investigated the possibility of speeding up the application time to encourage immediate capital flows.
market. Policy settings will be informed by other markets that are influenced by Chinese
investment capital. These include real estate markets in Hong Kong, Singapore, London, New
York, Vancouver, San Francisco, Sydney and Melbourne which are now the most
unaffordable housing markets in the world. Each demographic has been influenced by foreign
investment.
China will generate more capital than it absorbsv
Since embarking on market opening reforms more than three decades ago, China has been an
accumulator of global capital to finance its growth. Looking for Chinese GDP to resume its
rapid expansion, despite the current global slowdown, many forecasters expect that rapid
growth patterns will remain strong for the foreseeable future.
In the 1980’s China introduced land rights, allowed foreign investment as a critical base for
economic expansion, and encouraged joint state enterprise partnerships to promote
commercial and capital growth. Inequality was ‘no longer the enemy’: in fact, the
government stated that it was to become the ‘new norm’. Reformist leader Deng Xiaoping
disparaged Mao’s egalitarianism as ‘everyone eating from the one big pot’. Overturning that
failed idea would bring growth to everyone eventually, he suggested: ‘it is good for some
people to get rich first’.
When the Global Financial Crisis hit China the effect was that growth dipped dramatically to
6.6 percent during the first quarter of 2009. Beijing introduced a massive Keynesian style
four trillion Yuan stimulus package that saved both the economy of China and also, critically,
the economy in Australiavi. Cai suggests that;
Since the 2008 financial crisis China has been responsible for 40 per cent of global growth,
despite the fact the country only accounts for 15 per cent of the world’s population and less
that 20 per cent of its income. The country not only pulled off a perfect Keynesian experiment,
but also offered a few instructive lessons about financial crisesvii.
High levels of stimulus have had mixed results for global economies. China’s economy
immediately rebounded to double digit growth whilst a similar long term stimulus in the
United States has resulted in slow growth, and other developed economies have declined
permanently by as much as 10 per cent on respective long-run trends. In the United States the
stimulus package has favoured the high end financial services sector and has not by design
“trickled-down” to mainstream domestic economy growth. In Australia the effect of China’s
resurgence meant high demand in the resources sector and a stimulus package in 2009 that
produced a continuum of spending through the domestic economyviii. As the resource boom
recedes, there is, alternatively, housing market growth strength, also stimulated by China.
China now has more than a million millionaires and 200 billionaire’s.ix. French Economist
Thomas Picketty refutes the suggestion that wealth and income will become more evenly
distributed within nations as they develop. He (Picketty) argues that even the best run
capitalist economies concentrate riches at the top reasoning that, in the long run, the return
paid to owners of capital is higher than the rate of economic growthx. Evidence of
unprecedented capital growth, translating into personal wealth, in China, is outpacing all
predictions.
In an article titled “The State of The State” by John Mickelthwait and Adrian Wooldridge,
Editor, and Management Editor, respectively, of The Economist, predicts significant strength
and dominance, globally, of the Chinese economy. Mickelthwait and Wooldridge argue that
the Chinese have produced a new model of government that directly challenges the Western
belief in free markets and democracy.
China has pioneered a form of “state capitalism” by selling off thousands of smaller
companies but keeping the equity stakes in more than a hundred large companies. The
country has also revived its ancient principle of meritocracy by recruiting Chinese
Communist Party members from top universities and promoting party functionaries based on
their ability to hit various targets, such as eradicating poverty and promoting economic
growth. China has also achieved significant government reform. In the past decade, it has
built a world-class university system. In the past five years, it has extended a government
pension program to 240 million rural citizens—far more than the total number of people
covered by Social Security in the United States. Wealth creation though these reforms is the
underlying condition that influences the desire of millions of wealthy Chinese to purchase
assets in desirable foreign countries. Australia has many desirable features including stable
government and world class education systems.
McKinsey Global Institute’s Cityscope database provides an analysis of 2,600 cities and a
projection of where the wealthiest cities will stand on terms of population and Gross
Domestic Product (GDP) in the year 2025xi. Thirteen of the top 20 cities5 ranked by
population and GDP are Chinese. Shanghai tops the list with an expected GDP, in 2025, of
US$1.112 trillion, amongst a population estimated to be 30.9 million. Beijing is second with
a predicted GDP of US$1.027 trillion and a population of 29.6 million. Tianjin, Guangzhou,
Shenzhen, and Chongqing are the other 6 Chinese cities in the global top ten, with a
combined population estimate of 63.2 million and a combined GDP of US$2.179 trillion.
New York, by comparison is estimated to have 19.7 million inhabitants by 2015 and a GDP
of US$1.5 trillion. What is outstanding in these estimates is the percentage of projected
growth of Chinese cities listed in the top 10. The average projected growth is 354 per cent xii.
Analysis by Bain & Company’s Macro Trends Group, however, shows China entering a
major shift, from being a capital absorber to becoming an increasingly large contributor to the
global financial capital supply. The capacity of the domestic Chinese economy to absorb
capital productively is diminishing.
In 2013 China began a transition from a direct industrial and manufacturing orientation to one
focused on domestic market growth. Projected growth had come off record levels of double
figures over a protracted period to a more sustainable growth in GDP of just over 7 per cent.
This sustainable growth model has had resultant slowdown patterns for Australia where
commodities exported to China have slowed and the commodity and resource boom has
flattened.
The continued increase of fixed investments at historical levels was unsustainable, and,
concomitantly, marginal returns on capital are diminishing. Foreign direct investment into
China will decline as future growth prospects slow. Meanwhile, China’s capital reserve
5
Estimates are based on underlying demographic data and GDP per capita growth projections, and subject to
significant uncertainty in evolution in everything from population and migration patterns to per capita GDP
growth and exchange rate outlook.
balance—a dividend from the nation’s export-led growth—had expanded tenfold over the
past decade to more than $2 trillion by 2010. Unsustainable over the long term, China is now
transitioning from its policy of recycling current account earnings using low-yielding
Renminbi bonds that artificially depressed its currency exchange rate and further helped to
fuel exports.
As it pursues a more balanced approach to growth, Beijing has begun to permit China’s
increasingly affluent savers to invest in a broader range of higher-return financial assets—
including assets based beyond China’s borders. International Monetary Fund data projects
that China’s contribution to the growth of global capital will increase at a 12% annual rate
compounded to some $125 trillion through the balance of this decade, a threefold increase in
its share.
A different political economy has been envisioned for the Australia – China relationship.
China is one of a number of influential financiers in property and investment structures in
Australia. China is also a leading investor into other nation states. How will Chinas’
investment into Australia change the nature of our intra-nation relationship? How will the fast
paced Australian property market react and what could be Australia’s response to the
burgeoning foreign investment markets from other overseas financial markets, including
China.
Australia’s New Financial Hub
A critical factor to be examined in this context of upward movement in economic markets in
China and Australia is the recent announcements of the Australian Prime Minister Tony
Abbott relative to a new “financial hub” in Sydney to offer a trading point for the Chinese
Yuan. Alone these issues create opportunities for high level capital exchange. Together with
other market dynamics there could be the likely ramification that bubbles form within
investment sectors, as is now evident in housing markets in Sydney and Melbourne. It could
be argued that both these cities now enable exclusivity of housing portfolios to the detriment
of wider markets. In similar circumstances to other unaffordable cities like London,
Singapore, Hong Kong and North American cities. Concentrations of wealth can be seen in
Sydney and Melbourne where entire apartment blocks are purchased by overseas investors.
Enabling further finance into Australia is a key initiative of the Abbott Government. Sydney
is to become the next Yuan Trading Hub. Federal Treasurer Joe Hockey announced in April
2014 that Australia and China had reached an agreement to “enhance offshore market
development of the renminbi”.xiii The Treasurer states that the monthly market trade volumes
have grown from US$324 million in 2013 to US$2.4 billion in 2014. Only designated banks
including Westpac, ANZ, and HSBC can directly trade the currencies.
Joshua Dentrinos, head of global sales at Australian investment trader ThinkForex the advent
of the Sydney trading hub would free up the flow of money between Australia and China and
allow for “smoother transactions for Chinese nationals to invest in Australian products,
businesses and assets”. This new arrangement will potentially provide a conduit for further
direct investment into housing markets. The Prime Minister is pushing to have the
arrangements for a Chinese currency hub finalised for the arrival in Australia of Chinas
President in November 2014.xiv
Capital concentrations can also distort the wider socio-economic picture. Concentrations tend
to create wide inequalities in cities and communities. Total overseas investments are AU$250
billion and rising substantially as global insurrections firm Australia’s safe haven role.
The question is how does Australia acknowledge and manage the issues of foreign direct
investment in ever larger amounts against the potential for alienating its citizens from
established housing areas. What indeed is the role of government? Investors, increasingly
from China see stability and potential. Home owners in some parts of the country are often
affected positively in that their properties rise significantly in value. Whilst citizens
endeavouring to get a hold in the lower end of property markets, appear to now be
disenfranchised. By examining the political and social effects of rapidly expanding capital
relocation to global locations where foreign investment is welcomed should give an
indication of how Australia’s cities may be affected consequentially in coming years.
London for example is a host capital to vast capital resources, considerable investment from
international financiers and ultra high net worth individuals (UHNWI). Growth in some
suburbs in London has been over 15 per cent in the last twelve months. Vander Weyer states
that “London’s economy, roughly a fifth of all UK output, is expected to grow at more than 4
per cent this year- drawing in migrant workers and rich safe-haven seekers alike from the rest
of the world, as well as from the rest of the country. Its house prices are well over the double
the national average and rising twice as fast, making desirable post codes inaccessible to the
vast majority of home-buyers. Tower Hamlets, neighbour to the money citadel of Canary
Wharf, has the UK’s highest level of child poverty”xv.
London house prices are 26 per cent higher than at the markets low-point in April 2009
suggesting that this market is entering the dangerous “bubble” stage. Prices across England
are higher than pre-credit crisis levels in 2008. The average house price in London is now
485 thousand pounds or more than 14 times the average income. Chancellor George Osborne
does not believe that this is “bubble” territory however he recently announced measures to
manage further problems for buyers who are stretched in capacity to buy into markets.
Chancellor Osborne has recommended the Bank of England’s financial policy committee
restrict mortgage loans compared to borrower’s incomes or the value of their house.
James Chessell writing in the Australian Financial Review suggests that these are contentious
issues in a market where the spotlight is clearly focussed on price rises. He explains that “the
main game” is interest rate rises which the Bank of England governor Mark Carney said
“could happen sooner than markets currently expect”xvi. This issue will be important in
limiting the risk to individual purchasers in the United Kingdom’s real estate sector but as
noted in the following section it is global institutional investors who are the source of major
capital appropriation into housing investment in London, Singapore, Sydney and Melbourne.
The free market conditions laid out in the ever increasing “free trade agreements” over
speculative investment into already over-heated housing markets.
The internal dilemma for Australian domestic policy is clearly appropriate monitoring of
compliance to existing practice, an open approach to policy issues, within rapidly moving
market expansion. Over the past two years (July 2012 to June 2014) Australia has fast
become the chosen destination for the wealthy Chinese middle classxvii. Joint ventures
between Chinese and Australian firms are rising in an attempt to capitalise on housing and
infrastructure investment. This has been influenced capital investment into Australia where a
stable 22 year continuous growth pattern has maintained Australia’s investment destination of
choice.
Real estate markets in China also predicate structural investment decisions. In an effort to
stem concerns regarding the high end Chinese real estate market US Treasury Secretary
Jacob Lew China’s sais red hot real estate prices isn’t going to impact global financial
markets the same way the U.S. mortgage crisis did. Lew addressed the US China Business
Council and suggested there is a possibility of a bubble and that China had an “awful amount
of tools” to stop it. Lew argued that “China needs market determined interest rates and
market determined capital, and that “some of the pressures in the economy, like real estate,
come from the artificial way in which capital has been allocated.” Further the Treasury
Secretary said the housing market was not connected to the rest of the world, and was
generally not over leveraged like it was in the U.S. and Europe. ”I think that for the next few
years China can handle that, but if we go five years down the road and no reforms have been
made, maybe they will have more difficultiesxviii.”
Unprecedented Shift to Globalisation of Real Estate capital
The rise of Chinese influence in Australian real estate markets should be seen in context to a
number of connecting points, including high levels of accelerated growth fuelled by overseas
investment capital, real estate construction, and demand for new properties built for sale to
the market. Australia is developing a global reputation of being a destination of choice for
global real estate investors, in a well-regulated and highly transparent growth-oriented
market”.
Despite precarious global financial interruptions in 2007 and 2008 the Australian economy
withstood pressures “better than most other economies in the developed world”.xix Since that
time Australia has seen reduced but steady economic growth in contrast to most other
developed world nation states and particularly those of Europe. Accelerated growth in
Australia and resurgence in the United States has been led by sound “home economics”, local
Australian fundamentals and, increasingly, by global real estate investors seeking investment
safe havens. This aspect (safe havens) has linkages to government (local and global) cracking
down on tax avoidance in tax havens, and the globalisation of investment activities. Real
estate investors are focussing on Australia.
With the political and economic conditions openly being encouraged by Prime Minister
Abbott and Treasurer Hockey, conditions to accept new waves of investment have never been
so appealing to new capital participation in markets that are well priced, in global terms. In
2007 there was 31 per cent of money flowing into property markets originated in Asia. Over
the past 24 months that number has more than doubled to 79 per cent. This big increase in
offshore capital from Asia has been seen also in New York, San Francisco, and London.
DLA Piper and The Association of Corporate Counselxx suggest that the same surge in capital
is evident in Australian property markets because the commercial, residential, retail, and
industrial real estate sectors, continue as preferred destinations for overseas real estate capital,
particularly from North America and Asia, attracting many first time investors. Australian
appeals to foreign investors for the following reasons:
First and foremost, Australia trades heavily off a strong reputation as a highly transparent real
estate market underpinned by a sophisticated legal system and a stable economic and political
environment. Secondly, what has assisted in recent years is the introduction in 2008 of the
Managed Investment trust Regime, which offers qualifying foreign investors a concessionary
withholding tax. Other changes have helped, such as the introduction of the Significant
Investor Visa in 2012, which provides high-net -worth-individuals the ability to apply for an
Australian visa and ultimately permanent residence on the basis of a minimum investment in
Australia of AU$5 million. Third, favourable pricing has a significant effect. Locally, until
recently, the competition for investment grade assets from domestic capital sources has been
this and certainly contributed to yields remaining at attractive rates for investors. Interestingly,
pricing remains attractive by global standards, particularly when compared to key US and
European gateway cities. Finally, at the micro level informed investors are aware that
Australia’s real estate sector entered this period with almost no oversupply in most sectors.
“Safe Haven” Australian Investment Surge Underway
Shanghai based Greenland is developing a AU$680 million 235 meter tall residential tower in
the city centre comprising 470 apartments, 370 of which have already been sold. The most
expensive 100 apartment have yet to be placed on the market. This is part of an AUS1 billion
Greenland expansion into Australian estate developmentsxxi. The Greenland Centre will build
a boutique hotel and residential tower on the heritage-listed former Sydney Water Board site.
The Chairman of Greenland Holdings Group, Zhang Yuliang, said the group would also have
new property projects in Australia over the next 12 months, including one hotel in each of the
Australian cities. The company owns a casino in South Korea and is seeking a Queensland
license. It owns more than 60 hotels in China valued at over AU$3.75 billion.
Greenland states its overseas interests cater for rising number of Chinese overseas interests
including businesses, tourists, residents and students estimated to be 100 million this year and
rising to 200 million over the next two years. Investors amongst the increasing number of
high net worth Chinese individuals are looking at overseas opportunities for investment and
risk diversificationxxii.
On the banks of the Parramatta River Starryland Australia, a subsidiary of China’s Fuxing
Huiyu Real Estate Company, is building an 11 tower apartment complex called Promenade.
Fuxing Huiyu is a company that builds “mega cities” in China’s high population areas
including Wuhan Province. The Sydney venture aims for just 774 apartments. Alone these
two developments would be well over the AUS1 billion ceiling currently in place.
This new real estate investment dynamic is also evident in Queensland where Asian
investors, believing that Melbourne markets are oversupplied and Sydney markets are
overpriced and have responded to opportunities presenting in Southeast Queensland.
Singapore based Ho Bee Land is developing a 43 story 223 apartment complex at Surfers
South, the first new tower construction in that area for over three years. In Broadbeach there
is continuing discussion about an AU$1 billion Jewel Development backed by Chinese group
Ridong.
There are many economic and social issues related to investments from Asian countries and
particularly China. Socio-economic issues are apparent in response to the developing market
dynamics. In Melbourne government Planning Minister Matthew Guy has approved new
residential zones as a response to the rapid growth of inner city housing density. These new
zones are to be included in the cities most expensive areas and include, primarily, a new
restricted height of two storeys for new development proposals in areas of Melbourne with
the “best transport and infrastructure”.xxiii
By contrast, in the Prime Ministers home city of Sydney there has been a high demand for
new apartments in the inner city areas. Apartment approvals have risen from 3861 in the
quarter to March 2013 to 6046 in the quarter ended 2014xxiv. More than 5000 apartments are
proposed for the city’s CBD, according to property economics consultants Deep End
Services. A considerable slice of the new developments are being undertaken by Chinese
based construction entities.
The Foreign Investment Review Board Annual Report 2012 – 2013 stated that 12 731
proposals were received for approval compared with 10 703 in 2011-2012. 12 025 approvals
were recorded in the real estate sector. Approvals were granted for AU$135.7 billion
(overall) proposed investment. Of this commercial real estate accounted for AU$34.8 billion
and residential real estate proposals were AU$17.2 billion. In 2012-13 no proposals were
rejected.xxv
Real estate was the largest finance destination by value compared to mineral exploration and
development (AU$45.1 billion, and services (excluding tourism) with proposed investment of
AU$25.9 billion.
Foreign Investment Review Board (FIRB) figures show Chinese approved property
investment in Australia during the 2012/2013 financial year to be worth AU$15.8 billion.
This placed China as the third largest foreign investor into Australia’s investment property
market, behind the United States (AU$20.6 billion) and Switzerland (AU$18.4 billion). A
significant growth is likely that the figures to 30 June 2014.
A recent report by the Reserve Bank of Australiaxxvi indicated that the foreign approvals,
(through the FIRB) as a share of dwelling turnovers in Australia had expanded during the
first three quarters of 2013 – 2014.
Legislative Framework
Australia’s foreign investment laws seek to channel foreign residential activity into new
dwellings to promote local construction. The laws cover three broad groups:
 foreign developers of new residential projects;
 foreign purchases of new dwellings; and,
 temporary resident purchases of new and established dwellings.
The current legislative rules permit foreign-developed new residential projects and permit the
on-sale to either foreign or domestic buyers, foreign individuals and temporary residents are
permitted to purchase any new dwelling, and thirdly, temporary residents with visas that
allow them to stay in Australia for a continuous period of more than 12 months (such as some
foreign students and people on skilled business visas) are permitted to purchase one
established home provided it is used as their principal place of residence while in
Australia and is sold once vacated.
Foreign investors and temporary residents require approval from the Foreign Investment
Review Board (FIRB) prior to purchasing a dwelling or site for development.
Foreign owned companies can also purchase established properties to house their Australianbased staff.
Foreign or domestic developers of new residential projects are permitted, with pre-approval,
from the FIRB to sell up to 100 per cent of the new building stock to non-residents, after
which no further approval from individual buyers is required. The published FIRB data does
not reflect the share of new residential dwellings in these projects that were actually on-sold
to foreign citizens or temporary residents or the timing as to when the sales occurred.
This issue was raised the recent House Economics Committee hearingsxxvii into foreign
investment in housing markets. Consensus on data available was stated to be a critical
component that was being missed in the quantum of understanding across the bigger issue of
foreign ownership, how it was occurring and what were the potential consequences. The
Reserve Bank of Australia (RBA) stated “a terrible lack of data about foreign buyers and that
not all buyers that seek permission to invest in Australian property, actually do so”. The need
for a consensus to establish empirical evidence is a key to understanding the social and
economic effects of international influences on domestic markets.
More evidence has emerged that the data surrounding foreign purchases of Australian
property is highly unreliable, with the Australian Bureau of Statistics (ABS) admitting to the
House of Representatives inquiry that it relies on trade magazines and newspapers to keep
track of foreign activity in Australian real estate, whilst also admitting that its estimates of
foreign investment is “very conservative”.”We do scan press reports and real estate specialist
magazines to try to identify purchases of real estate and [to] record those and record valuation
changes from those. But I have to say, that’s a bit hit and miss,” ABS assistant statistician,
Paul Mahoney suggested.
Committee chair and Liberal MP Kelly O’Dwyer asked Mr Mahoney if the actual figure of
foreign investment in Australia’s residential real estate could be higher than the ABS
believed. That would be a fair statement” Mr Mahoney said.
Doubts have been raised over whether the reported number of existing homes sold to
foreigners is anywhere near accurate, with the true figure likely much higher (see below table
from FIRB).
Figure1. Foreign Investment Review Board 2014
Figure 2. NAB’s Residential Property Survey of Industry Insiders
Moreover, when combined with the fact that the FIRB, states that since 2010 it has been
incapable of monitoring/enforcing whether a foreign temporary resident has sold their home
within three months of departing Australia, it is clear that the regulatory regime governing
foreign investment in Australian real estate is not workingxxviii.
Within Australia the recent rise in values of investment and consumer properties also has a
significant dynamic which relates to an already hyper-inflated value of sections of the
housing sector mainly situate in Melbourne and Sydney. The issue relative to the Australian
market is resultant of long standing policy settings which support negative gearing for
investors rather than an approach within the wider economy to broaden employment relating
investment policies.
The collision course will not be affected by Chinese investment as it stands at this time.
Whilst there is evidence of a rising interest in Chinese investors within Australian market
there are some portions of the market that remain excluded from overseas investors.
Predominantly the new apartment complexes and new standalone houses are the target of
new investment as used residential buildings are excluded in most cases from investors from
overseas. Anomalies do exist whereby overseas investors are able to circumvent rules to
enable procurement of domestic used stock.
The evidence gathered at the hearing indicated that foreign buyers represented 12 per cent by
value of properties under construction, and account for nearly a fifth of property sales in
Sydneyxxix. Credit Suisse notes that as overall foreign investment in Australia has dropped,
mainland Chinese buyers spent A$5.9 billion ($5.5 billion) in the year ended June 2013—a
40% increase
The RBA stated that the average purchase price on proposals to the FIRB are over AU$1
million which does not compete with those of Australian first home buyers. Christopher
Kent, Chairman of the RBA, that activities originating from foreign developers had a positive
aspect in that it stimulates the building and construction industry in Australia and introduces
new housing options particularly in the high demand areas of Sydney and Melbourne.
Regulatory provisions do not allow for retail market sales to Chinese purchasers but
considerable evidence exists that new properties including new apartment buildings are being
constructed and have been selling at unprecedented rates in Sydney and Melbourne, and more
recently in South East Queensland. Chinese investment in Australian real estate has grown by
almost 60 per cent in just two years to March 2014xxx. In some Sydney and Melbourne
markets house prices have risen by 27 per cent in one year. In the Sydney harbour suburb of
Mosman 30 to 40 per cent of sales over AU$3 million have reported been to Chinese buyers.
Chinese and Asian potential buyers have become so important that agents have set up offices
in China. Juwai.com , a leading real estate investment broker, estimate that 63 million
Chinese are now able to buy properties abroad, and claims that the number buying into the
Australian market has grown ninefold, faster than anywhere else in the world, over the past
three years. The websites executive officer, Andrew Taylor, says interest by buyers is up 370
per cent on last year alone. Taylor says that “Investment and lifestyle are major factors.
Quality education and medical –and of course, immigration -are strong factors”. Taylor says
that it is not high levels of finance, rather “...the most popular bracket is AUS550, 000 to
AU$750,000 for houses and apartments”. Many apartments are purchased for Chinese
students who numbered 150 000 in 2013.
The pace at which Asian investors have been purchasing Australian property is expected to
accelerate in 2014, and approach AU$44 billion in the seven years ahead, putting, in many
areas, upward pressure on local pricesxxxi. The AU$44 billion figure, predicted by Credit
Suisse comes as global investment manager Nomura warned that China’s property market is
headed for a correction and economic growth will slow to around 6 per cent, unless the
government steps in. Credit Suisse equities strategist, Hasan Tevfik said a lack of momentum
in Chinese property means that the Australian housing market is likely to become even more
attractive in the short term. “We argue the correction has been triggered by monetary policy
tightening since mid-2013 and that the downtrend will continue unless policy tightening
reverses into loosening,” Nomura Research Analysts said in a report on Chinese propertyxxxii.
The take-up rate of built assets within China has faltered with some estimates suggesting that
many thousand new housing units remain unsold and unsought across developed city
complexes in China. At the same time foreign interest in Australian property is surging.
The Governor of the Reserve Bank of Australia (RBA), Glenn Stevens, was asked by the
RBA Committee, examining foreign investment into Australia, “whether capital city house
prices” were being driven up by foreign investment”. The Governor retorted “I suppose the
question is really: how big do you really think it is?’ The Governor noted that:
“Foreign investors are generally confined to buying new structures. That is where it is easiest
for them to come in. It cannot be beyond our capacity over time to meet that demand and to
meet the legitimate demands of our own citizens for structures as well, can it? If we cannot do
that, and if there is a supply side constraint, I would say that is an issue worth addressing in its
own right. Beyond that, it would probably goes to broader questions of how welcoming we
wish to be to foreign investment generally. That can be vexed at times. With all respect, that is
a matter for our parliament to manage”
Asked to comment on housing affordability issues and the previously held views that
housing affordability had improved in recent years Governor Stevens replied that it
(affordability) did improve because prices stopped rising and went down, and interest
rates went down” and further:
“I think that metric has started to turn adverse again. Interest rates have not kept falling – they
cannot keep falling indefinitely- and prices have risen. As I have said before, the biggest threat
to affordability in this country would be if we were to get very large increase in house prices,
which those of us with a house will enjoy. But, if we think about our children, we will be
having second thoughts”.xxxiii
These are the critical public policy issues that go to larger structural governance of open
market reforms that Australia is committed to within World Trade and G20 membership.
The critical issues that speak to wealth creation within free market dynamics, and to
concomitant societal features of growing inequality and government responses to
maintain basic levels of welfare within affluent societies. As governments have ceded
more responsibilities to free markets their (nation states) ability to fund welfare becomes a
“vexing” issue as noted by the Reserve Bank Governor. The issue of monitoring high
levels of housing unaffordability is a risk would become a political risk given that the
Reserve Bank relies on data from the Foreign Investment Review Board which admits to
serious flaws in capturing appropriate data on which to report and make
recommendations. This at a time when foreign investment is surging.
Chinese Market Influences
China’s rapid growth can be difficult to follow in terms of perceived sustainability.
Commentators have suggested that the economy has peaked and others refer to more
sustained approach to the transition of the Chinese economy from industrial to a services and
commerce based model. Its exact model of authoritarian capitalism is not easily described.
Staged elections and media manipulation offer a view only of attempts to legitimise central
party dictums.
Nomura Macro-Business has suggested “China’s great real-estate bust has begun. A
combination of a huge oversupply of housing and a shortage of developer financing is
producing a housing market downturn that could drive China’s GDP to less than 6% this
year.“To us, it is no longer a question of ‘if’ but rather ‘how severe’ the property market
correction will be, and there isn’t much the government can do to head off problems. There is
no policy that is universally right.”xxxiv
Figure 3. Chinas property price inflation
Whilst the FIRB must approve the purchase of new buildings by overseas buyers, there are
suggestions that the board “rubber stamps” applications as it (in 2012-2013) only refused 13
applications (down from 43 the previous year)xxxv. Figures for the current year are not
available but agents say enquiries have doubled over the past year.
Chinese influence in global safe haven destinations is part of a new spreading environment in
international capital markets. Chinese investors have become the biggest foreign buyers of
apartments in Manhattan, now exceeding the reign of Russian oligarchs. New money from
China seeks both safe havens for finance and a range of other needs. It serves a new base for
wealthy Chinese seeking a base from which to launch new education opportunities for
childrenxxxvi.
Buyers are coming out of China and Chinese citizens are also leaving Hong Kong and
Singapore where apartment floor costs range from AU$4-5,000 per square foot. Sydney is
half that amount. London by comparison is AU$3.5 to 4,000 per square foot. More than 80
per cent of Chinese emigrating say their motivation is better education opportunities. 60 per
cent of those emigrating consider giving up their Chinese citizenship to exit their country.
Emigration figures show 52 per cent choose the United States, 21 per cent chose Canada, and
9 per cent have presented in Australiaxxxvii.
This effect is likely to have profound implications for Australian policymakers. To advantage
Chinese nationals in their quest to obtain overseas investments the Chinese Government is
relaxing restrictions on their overseas purchases. Purchases are driving a high level of
unregulated investment. Professor Charles Hamilton of Stuart University, has warned that the
new factors driving up Sydney’s house prices is likely to “change the city’s social fabric in a
way that will be felt for generationsxxxviii”.
In New South Wales former Macquarie Group banker Bill Moss has called for a 5 per cent
stamp duty impost on all foreign investors, claiming that Australians will be priced out of
their own markets causing social and economic imbalance. Moss states “we could end up
with buildings in the suburbs that are 100 per cent owned by Chinese, 100 per cent rented by
Chinese, built by Chinese companies, and are not available to the Australian marketxxxix.
Notable sales in recent times have been the Sydney residential properties “Altona” in Point
Piper for AU$54 million to Xiuzhen Deng, a Melbourne resident and sole director of
Chaimovich Investments, and another Point Piper property sold for AU$33 million to Qiu
Yafu for AU$33 million. Qui Yafu bought Cubbie Station in 2012.
What is the empirical evidence behind the recent phenomenon of new investment? What can
be done to provide a consistent policy response to meet the pressing demand of investment
change and housing market instability at a time when the International Monetary Fund has
issues a warning that housing bubbles are evident in Australia to a point where the nation is
third in the world on high housing prices?
The historical nature of the rise in investment is the effect of a new phenomenon of
investment spreading from China to the Pacific Rim countries, and major cities such as
Vancouver, Canada and San Francisco and Los Angeles in the United States. New wealth
driven housing investment flows predominantly from China. It also relates to the safe haven
real estate markets in Australia. The delivery of investment activity by China has drawn
Western real estate funds to Australia. Stewart Crow, head of JLL’s capital markets for AsiaPacific said “Funds are now looking for income-producing assets ...and Australia would
benefit as their markets are more transparentxl.” These funds are from North America and
Europe.
A question remains about the longer term influence of China, and other countries who
presently invest heavily in Australian markets. Issues related to China’s economic capacity
have been raised. Ross Garnaut, economic advisor, and China observer, has raised questions
about capacities for China to continue its growth strategies. Garnaut suggests that for “the
first time in 35 years I’ve been worried about the China outlook”. China is only years away
from regaining the title it lost in 1840 as the world’s biggest economyxli.
Any analysis of the current state of investment by China should be informed by overarching
structural issues of investment continuity as it now affects markets and how it may further
influence economic and social conditions in Australia.
Strategic change in global markets: Structural Issues
The balance of global political and economic systems is rapidly changing. Systemic change is
occurring in three main forms. Firstly a geopolitical contest of major proportions is present in
the form of intersection between Eastern and Western bloc nations. From this evolution,
principally by China, evolves a vast shift in wealth, nationally and demographically. China is
undertaking an internal political restructure with a strong emphasis on regeneration and
renewal into the future. At the same time the United States, as leader of the Western nation
state alliance is undertaking a measured recovery following a massive confidence-lull
economically and politically, post GFC. Social and economic orientations in the East
challenge the dominance of the West as it endeavours to cope with the economic paralysis of
the continuation of the Great Recession.
Finance lies at the heart of contemporary political and socio-economic systems. The current
recessionary financial crises, post GFC, have been the most disruptive and harmful
developments in recent political economies. Current operations of financial markets, the
cause of the crisis, raise profound questions about social inequality, ecological integrity, and
declining democracy. With such vital issues at stake, one might expect to see large, sustained
and influential civil society mobilisation on finance, in the way that major citizen activism
has developed on environmental problems, human rights, poverty and trade.
Australia’s role in Investment Safe Haven Growth
As discussed in this paper data from the FIRB reveals AU$5.9 billion in Australian property
purchases in 2012-13 came from China, an increase of 44 per cent on the year beforexlii.
Consummation of the rapidly developing circumstances of new Chinese funds entering
Australia is being undertaken by a new Free Trade Agreement (FTA) “worth tens of billions
to the Australian economy”.xliii
On a recent trip to China Prime Minister Abbott stressed to Chinas Premier Li Keqiang that
“Australia was open to business”. Officials at the meeting, at “state level” suggested that
signs indicated that the meeting was welcomed, and that the Chinese leadership was eager to
use the “extra leverage of a free trade agenda”, in line with speculation that the AU$244
million threshold which triggers automatic assessment by the FIRB would be lifted. Premier
Li’s cooperation is seen to be crucial to the new Australia/China reform agenda “pushing for
gai ge and kai fang”, translating to pushing for reform and openness. The FTA could be
signed late 2014.
Issues of economic sociology suggest that the “rising tide carrying up all boats” is disputed
by the magnitude of ongoing crises that constantly require a call for governance and
engagement of financial markets and their regulation. Global levels of inequality are ever
present. A recent report by the British Governments Social Mobility and Child Poverty
Commission highlights the levels of predicted inequality in Britain, including London, one of
the world’s most unaffordable cities. London is also a destination of high choice for Chinese
capital. The Report claims that 23.5 per cent of British children will be living in “absolute
poverty” by 2020. Comparing this level of poverty to Ethiopia (30%), Namibia (29%),
Taszania (28%) with Bhutan slightly less on 23%.xliv
The US trade deficit with China began widening after 2001, coinciding with the time that
China joined the World Trade Organisation. The US trade deficit with the Chinese
Government is more than US$1 trillion, and currently growing at US$300 billion per
annum.xlv The International Monetary Fund estimates that the size of the Chinese economy
will overtake the United States economy between 2020 and 2025 which has predicated debate
about the challenges to exiting global tensions between these dissimilar states as the balance
of power shifts east.
China has made its intentions clear through its relationship with investments in the Shanghai
Cooperation Organisation and a new plan for a BRICS development bank as a joint
investment institution between Brazil, Russia, India, China and South Africa. Wu Imbo, of
Fudan University has called for an end to the “US-centred Cold War structure” in East Asia ,
and Yuan Peng a Chinese foreign policy scholar suggests that because of the rise of
developing countries in the new world order China should “modify unreasonable
international mechanisms including international or regional organisations, regimes, and
laws”.xlvi
This paper challenges latent views that conservative approaches to China’s emerging global
influence will herald re-growth in Western economies. Evidence of strategic overtures
suggest that China will place an emphasis of cooperation within BRICS and future alliances
with Russia as demonstrated with the new long-term supply contacts for natural gas to
replace coal as a prime energy source. This paper evidences new challenges to system change
which propose radical restructuring of international political economies. This paper provides
a background on how to understand Chinese investment in Australian housing markets.
Systemic political change is intrinsically tied to four decades of western dominance in neoclassical economic paradigms which have built substantial wealth and now instability in
mendicant state based economies. Vast credit has turned to high debt levels. Across Europe,
the United States and most Western democracies the fixation on wealth creation, credit
availability, and failure to adequately educate consumers in financial management, has
resulted in the growth then consolidation of financial elites against high levels of consumer,
business and government debt. Keynesian models of accumulation in times of economic
upswings, and spending in the times of downturns has become permanent levels of pump
priming as the United States injects US$81 billion into its economy every month.
And to whom do citizens turn when governments lose momentum and connection with their
constituents? This is the crucial question in an age of high technology. And high fragility in
financial markets intractably tied to political leaders. Evidence suggests that political leaders
no longer have the integrity or intellect to connect with voters in western nation states. Recent
evidence of high level political upheaval in European states point to lost decades of social
and economic instability.
Eastern style command economies have rapidly transformed pragmatic economic process
management that is required to guide economies through rapidly changing and rapidly
unstable dynamics in global markets. China has emerged through recent reforms carrying an
emergent middle class and bringing millions of citizens out of povertyxlvii. These consistent
policy approaches, political renewal and rapid economic growth have created a new world
order. An examination of socio-political structures between the United States and China is
informing given the vast power that both countries exert on both developed and developing
economies.
The United States based Pew Research Centre on Chinese attitudes in 2011 showed that 87
per cent of national respondents indicated satisfaction with the general direction of the
country, 66 per cent reported significant progress in their personal circumstances in the past
five years, and 74 per cent said they expected the future to be even better.
Contrast this to the continuing malaise and disaffection with stalled European and United
States economies. Since the financial crisis began in 2007, and intensified in 2008, the United
States, Japan, Euro zone and United Kingdom economies have failed to recover, in fact the
United Kingdom economy is now 12 per cent below its pre crisis trend growth rate and may
not return to pre 2007 levels until 2017. The resultant public unrest is evident along with
political uncertainty. Anger with political and economic leaders is high in the United States.
An American Election Studies poll indicates strong disconnections between citizens and
politicians. In 1964, 76 per cent of Americans agreed with the statement “You can trust
government in Washington to do what is right just about always, or most of the time”. By the
late 1970’s that number had dropped to the high 40 per cents. In 2008, it was 30 per cent and
in 2010 it had fallen to 19 per centxlviii.
Australia already has one of the highest house pricesxlix.
Within Australia the recent rise in values of investment and consumer properties also has a
significant dynamic which relates to an already hyper-inflated value of sections of the
housing sector mainly situate in Melbourne and Sydney. The issue relative to the Australian
market is resultant of long standing policy settings which support negative gearing for
investors rather than an approach within the wider economy to broaden employment relating
investment policies.
The collision course will not be affected by Chinese investment as it stands at this time.
Whilst there is evidence of a rising interest in Chinese investors within Australian market
there are some portions of the market that remain excluded from overseas investors.
Predominantly the new apartment complexes and new standalone houses are the target of
new investment as used residential buildings are excluded in most cases from investors from
overseas. We will see that anomalies do exist whereby overseas investors are able to
circumvent rules to enable procurement of domestic used stock.
And significant growth is expected in markets with Credit Suisse expecting that Chinese
nationals will allocate approximately AU$44 billion over the next seven yearsl. The bank
draws on information from the Foreign Investment Review Board, Department of
Immigration and Australian Bureau of Statistics to estimate (conservatively) an investment
tranche of at least AU$5 billion per annum applied to the investment property sector. The
Foreign Investment Review Board’s 2012/13 annual report listed a figure of AU$5.9 billion
for Chinese real estate applications that included commercial and residential real estate.
Additionally Credit Suisse estimates that Chinese buyers are currently purchasing around 12
per cent of all new homes in Australiali.
Figure 4. Global property market data
Figure 5. Housing Price to Income Data
The ratio of house prices to rent also highlight that Australia is at the high end, behind
Canada, New Zealand, Norway and Belgium. Japan is the lowest.
Figure 6. Price to rent Data
To arrive at an empirical base in order to quantify data remains beyond the reach of this paper
as a number of gaps exist in data analysis and collection because of the sudden nature of high
level investment not only from China but other Asian economies. And to the distortions
evident in the investment type and location of properties. Within the afore-quoted 12 per cent
is a concentration of investment properties purchased in Sydney (18 per cent) and Melbourne
(14 per cent) of the market offerings. In other capital cities it is 7 per cent or lower.
The first task is to see how likely it is that the buoyant Chinese investment will stay fluid.
What are the recent historical factors in China and how do commentators judge issues of
sustainability within the recent construct of the Chinese market economy. And then this will
inform the likelihood, or not, that the spike in investments will indeed be sustained in this
country. Will we see a skewering of affordability given that Sydney is placed 4th and
Melbourne 5th in the least affordable home prices relative to incomeslii. Chinese investment at
the high end could pose considerable systemic risk.
This risk is concerning in Australian markets as it is in many other countries that have come
under the influence of offshore investment. Evidence of high levels of severely unaffordable
housing can be seen in London, Singapore, Hong Kong, and Pacific Rim capital destinations.
Issues of sustainability of Australian housing markets are further compromised by reports
alleging that the Bank of China was laundering money to bypass regulations, both in China
and Australia, on foreign currency movements with much of the laundered money being
syphoned through to Australian property purchases. Allegations seem to confirm the
allegations that investors have laws preventing the movement of capital out of China. As
purchasers and owners of Australian properties attest.liii
Issues of affordability are related to the political implications of over-heated markets and
housing bubbles. Australia markets are causing considerable concern to some sections of the
market that are being “pushed out” at least by the perceived issue of foreign investment.
Middle-class and first home buyers no longer gain traction in Melbourne and Sydney markets
and it would appear that foreign investors are seeking properties near established and
reputable university cities in other parts of Australialiv.
A recent article suggested that Australian politicians are keen property owners. Lindsay
David, Deakin University’s Philip Soos and Paul Egan reportedlv that:
From the parliamentary register of members’ interests shows the 226 members of federal parliament
(both houses) have an ownership stake in some 563 properties. While these properties may be jointly
owned with a spouse, this is an average of 2.5 properties per member. In 2013, the 76 members of the
Senate had 202 property holdings and the 150 members of the House of Representatives had 361
property holdings. Top of the leader board is National Party Senator Barry O’Sullivan with a portfolio
of 50 properties. David Gillespie follows with 18 and Palmer United Party Senator Clive Palmer has a
seemingly conservative 13, although the total value of Palmer’s properties is unknown (see table
below).The estimated total value of these properties is said to be around AU$298 million. This was
calculated by multiplying the 563 properties by the median dwelling price of $530,000, as of July 2014.
If these properties are located in major cities or other high-value areas the property holding could be
substantially higher.
These substantial interests in a market and policy framework under revue must present some
bias in the discourse. An issue that is sure to be of interest to the parties listed below.
Figure 6. Australian Politicians interests in housing markets. Compiled by Lindsay David, Phillip Soos,
and Paul Egan, of Bubble Economics. Published in The Conversation. 7 August 2014.
Free Range Finance - Chinese Elites Exposed
This paper contends that there are a number of points of reference that influence the way that
predictions can be made. These include the rapid rise of wealth in China, and the need for
Chinese investors to “park money’ outside China in safe havens and tax havens in ever
increasing amounts. Chinese investors have “for years, been transferring billions worth of
their money overseas, snapping up pricey real estate in markets, including Australia”. At a
Chinese national level allegations have been made against the Bank of China claiming that
the bank had been “money laundering”. Currently China’s foreign exchange rules cap the
amount of money that Chinese citizens are allowed to convert to AU$53 thousand a year, and
bans nationals from transferring money out of the country. This ban is obviously by-passed
as very high levels of Chinese capital do leave China. The Chinese Government has recently
announced formally that a new government program is being introduced to manage this
issuelvi.
A report by the International Consortium of Investigative Journalists (ICIJ) contends that
some of China’s top leaders have held secretive offshore companies in tax havens that helped
shroud the Communist elite’s wealth. Files include details of a real estate company co-owned
by current President Xi Jinping’s brother-in-law and British Virgin Islands companies set up
by former Premier Wen Jiabao’s son and also by his son-in-lawlvii.
The ICJC reports nearly 22,000 offshore clients with addresses in mainland China and Hong
Kong appear in the files. Among them are some of China’s most powerful men and women
— including at least 15 of China’s richest, members of the National People’s Congress and
executives from state-owned companies entangled in corruption scandals.
PricewaterhouseCoopers, UBS and other Western banks and accounting firms play a key role
as conduits in helping Chinese clients set up trusts and companies in the British Virgin
Islands, Samoa and other offshore centers usually associated with hidden wealth. For
instance, Swiss financial giant Credit Suisse helped Wen Jiabao’s son created his BVI
Company while his father was leading the country.
The files come from two offshore firms — Singapore-based Portcullis Trust Net and BVIbased Commonwealth Trust Limited — that help clients create offshore companies, trusts
and bank accounts. They are part of a cache of 2.5 million leaked files that ICIJ has sifted
through with help from more than 50 reporting partners in Europe, North America, Asia and
other regions. Could this “hot money find its way into Australia. Could it be part of the next
wave of investment into housing markets? Could these markets continue their hyper-inflation
trend and create bubbles in segments of an otherwise quite volatile and unequal market.
Coincidently at the recent meeting of the IMF its Chairperson Christine Lagarde stated that
the aim of the forum was to deal specifically with inequality in the global space. Recent
developments in Australian housing markets, influenced by international investors, welcomed
by the new Abbott Government tend to accentuate the rising inequality of Australian and
international housing markets.
There are some similarities. The Chinese economy “took off” at the same time as the boom in
consumer spending spread via adjustment funding to countries who, post 9/11 terror strikes in
New York signed up to the War on Terror and started to receive high levels of investment
capital from the United States, keen to participate and reward for creating a “Coalition of the
Willing”. China and Australia both kick-started stagnant economies post September 11.
Rickards states that “ironically, it was the al-Qaeda attacks on September 11, 2001, and
China’s resulting firm support for the US-led global war on terror that finally broke the ice
and helped US-China relations get back on tracklviii. Despite almost twenty-five years of
significant economic progress by China, beginning in 1976, it was only in 2002 that USChina bilateral trade and investment co-dependence kicked into high gear”.
The bonanza of finance into Europe, Australia, and other members of the Coalition of the
Willing pump-primed lending markets and fed the insatiable rise of speculative finance.
Downward spirals of interest rates started with Federal Reserve Chairman Alan Greenspan
cutting money market rates in 2000 following the tech-bubble collapse. This then led to the
rapid bubble upwards in US and European housing markets for more than five years until the
market collapse of the GFC. Inequalities of a global kind still remain firmly embedded in
societies. 0.7% of the total global population own 41 per cent of global wealth. 68.7 per cent
own 3 per cent. These are the base figures for an examination of how new real estate markets
add to these inequalities, now amplified in Australia.
Having grown to unprecedented levels the domestic and investment property market in
Australia has become one of the most sought after in the developed world. This includes
considerable variations in overseas political orientations, speculative capital markets that are
almost free of specific country orientation and include predominantly tax havens, and “free
range capital, entering Australia through the new investment invitations for overseas
investors with over AU$5million to invest and then be afforded citizenship.
For Australian property owners there is an unprecedented upside in house values.
Alternatively there is a considerable downside to renters and non-market participants who
rent/lease property from investors who charge high rentals to cover inflated purchase prices.
Alternatively Australia could be informed by the experience of Chinese investment into the
Vancouver property investment markets, where inner city areas are dominated by what has
come to be known as “zombie suburbs”. These are areas of high rise apartments owned by
investors through a recent large inflow of capital, mainly from China. Canadian planner Andy
Yan delivered a report that showed 25 per cent of apartments, “with the density of
Manhattan”, are unoccupied most of the year. Canada has now scrapped its “millionaire visa
scheme”. Yan says investment properties are “completely decoupled from wages”.lix
Similarities to Australia exist. Vancouver, like Hong Kong, Sydney and Melbourne are in the
top six least affordable cities in the world. Pockets of high investment properties distort
markets. It raises the spectre of high level investment in properties purely as a hedge for
Chinese investors against the downside of market corrections in China.
Conclusion
This paper provides a discourse that acknowledges the influence of Chinese investment in the
Australian housing market. This paper suggests that this influence has been transposed from a
decreasing mining and commodity investment model to a more recent focus on housing and
property markets. At a macro-economic level the flow of capital is likely to increase at a
significant pace as both the Australian and Chinese political models encourage transnational
capital flows and investment.
The Australian government is promoting Sydney as a financial hub, and China is testing
methods to allow outward Yuan flows with a goal of making Shanghai a global financial
capital in 2020. For the present there are national and international goals that will likely
continue to highly stimulate pockets of the Australian domestic housing market with flow on
upsides for employment and building commodities. The other side of this boom in segregated
markets is the possibility of a “housing bubble”. An over-stimulated and already inflated
market built on low interest loans. The RBA is currently reviewing policy settings which will
ultimately determine policy responses.
The House Economics Committee headed by Kelly O’Dwyer is due to hand down their
findings on the current investigation, in October 2014.
i
Aussie politicians’$300 million property portfolio. MacroBusiness. 6 August 2014.
(http://macrobusiness.com.au/2014/08/aussie-politicians-300m-property-portfolio)
ii
Opinion: Chinese millionaires want a piece of Australia. Newcastle Herald. July 4 2014.
(http://www.theherald.com.au/story/2396643/opinionchinese-millionairs-want-a-piece-of-australia
)
iii
The big dangers of our millionaire visas. The Australian Financial Review. 20 August 2014.
(http://www.afr.com/p/world/the_big_dangers_of_our_millionaire_visas)
iv
Foreign property investment in Australia under close watch. Australian Broker Online. 31 July 2014.
(http://www.brokernews.com.au/news/breaking-news/foreign-property-investment-in-australia)
v
A World Awash with money: Capital trends through 2020. Bain and Company Global Financial Strategists.
Available at www.bain.com/publications/articles/a-world-awash-in-money.aspxd
vi
A Chinese lesson on how not to crash an economy. Peter Cai. 22 July 2014. Economy/China. Reported in the
Spectator Australia.
vii
How China’s Keynesian experiment paid off. 19 March 2014. The Spectator Australia
viiiviii
Withstanding Great Recession like China.
ix
While emerging economies boom, equality goes bust. Inequality spikes in developing nations around the
world. Mara Hvistendahd. Science and Inequality. Science Magazine. 23 May 2014.
(http://www.sciencemagazinedigital.org/sciencemagazine/23_may_2014/)
x
Global Inequality 1700-2012; divergence then convergence? In Capital in the Twenty First Century. Thomas
Picketty. The Belknap Press of Harvard University Press. Cambridge Massachusetts. 2014. Figure 1.3.
(www.piketty.pse.ens.fr/capital21c)
xi
“Urban World: Cities and the Rise of the Consuming Class”. McKinsey Global Institute Cityscope database 2.0.
(www.mckinsey.com/mgi)
xii
The Most Dynamic Cities of 2025.
(http://www.foreignpolicy.com/articles/2018/18/13/the_most_dynamic_cities_of_2025 )
xiii
Sydney hub will allow direct trading with renminbi. Alexandra Cain, Australian Financial Review. 15 May
2014. (http://www.afr.com/p/sydney_hub_will_allow_direct_trading_DzgOKIPd)
xiv
Tony Abbott’s free trade deal mission continues. Alexandra Kirk. ABC News. 11 April 2014, Available at
http://www.abc.net.au/news /2014-04-2014/tony-abbotts-free-trade-deal-mission-continues
xv
Why picking holes in Picketty might help stop Milliband’s mansion tax. Martin Vander Meyer. Any Other
Business. The Spectator Australia. 31 May 2014. ( www.spectator.co.uk)
xvi
House talk parallels in London, Sydney. Europe Observed. The Australian Financial Review. 20 June 2014.
(www.afr.com)
xvii
Fosun: Riding the rich, grey Chinese wave. June 21 2014. The Economist. Shanghai.
(http://www.economist.com/node/21604552/)
xviii
China Housing Bubble Won't Impact Global Financial Markets, Says Treasury Secretary Lew. Forbes Magazine. 1 July
2014.( www.forbes.com/.../2014/.../china-housing-bubble-wont-impact-global-financial-markets-says-treasury-
secretary-lew/)
xix
Joseph Steiglitz. Global Political Economy lecture at the Federation Hall. The Tasmanian Economic Society.
Hobart. July 4 2014.
xx
Why Global Investors prefer Australian real estate. DLA Piper LLP. Australia. July 2 2014.
(http://www.dlapiper.com/en/us/people/k/koltai-les/)
and (http://www.lexology.com/library/detail.aspx?g=9dOc9780-1c454f-bc9c-ble556060 )
xxi
China’s Greenland Group plans billion dollar investment in Australia. Australian Government Investor
Updates. ( http://www.austrade.gov.au/invest/investor-updates/2014/chinas-greenland-group-plans-billiondollar-investment-in-australia) Greenland Holdings is a Chinese state-owned enterprise covering real estate,
energy, finance, construction and automobile businesses. It is a Fortune Global 500 company ranked at 359 on
the 2013 list.
xxii
Bain and Company’s China Private Wealth Report 2013. (www.bain.com/publications/.../china-privatewealth-report-2013)
xxiii
Right balance in new zones: Top suburbs protected in high-rise ban. The Age. June 17 2014.
xxiv
Australian Property Monitors. ( www.theaustralian.com.au/projectapartment )
xxv
Foreign Investment Review Board Annual Report 2012-2013.
(http://www.firb.gov.au/content/Publications/Annual Reports/2012-2013/)
xxvi
Foreign Investment in Residential Real Estate. Maurice Gauder, Claire Houssard, and David Orsmond.
Bulletin. June Quarter 2014. (www.rba.gov.au/publications/bulletin/2014/jun/bu-0614-2a.html)
xxvii
Chinese property investments to be examined as House Economics Committee reviews foreign investment
laws. ABC News. Rebecca Hyam and Michael Janda. 17 March 2014.
(http://www.abc.net.au?news/2014-03-17/house-of-reps-to-look-at-foreign-real-estate-industry )
xxviii
ABS Foreign Data is dodgy. Macrobusiness. Leith van Onselen.
( www.macrobusiness.com.au/.../abs.foreign-property-data-is-dodgy )
xxix
Credit Suisse, as quoted in The Australia China Trade and Investment Journal. “Chinese investors driving
Australian property boom”. ! August 2014.
xxx
Investors pour into property market. South China Morning Post, 10 March 2013.
(http://www.scmp.com/print/article/1445297/investors-pour-property-market)
xxxi
Chinese buyers to invest $44b in Australian real estate: analysts. Michael Janda. ABC News 5 March 2014.
Available at http;//www.abc.net.au/news/2014-03-05/chinese-buyers-to-invest-44-billion-dollars
xxxii
Bianca Hargte-Hazelman. Asian appetite for Australian houses tipped to grow. The Economy Business May
6, 2014. ( http://www.smh.com.au/business/the-economy/asian-appetite-for-australian-houses-tipped-to-grow
xxxiii
The Parliament of the Commonwealth of Australia. Review of the Reserve Bank of Australia Annual
2000Report 2013 (Second Report). House of Representatives Standing Committee on Economics. May 2014.
xxxiv
Zhiwei Zhang. Chinese property bust is on. 6 May 2014. Numora Macro Business.
(www.macrobusiness.com.au/)
xxxv
Foreign demand is making Sydney’s housing problem worse. The Guardian.
(http://www.theguardian.com/commentisfree/2014/feb/18/wealthy-chinese-buyers)
xxxvi
Hurun Research Report and Vista Consulting. (www.hurun.net?EN/aboutus.apsx)
xxxvii
Chinese replace Russians as top apartment buyers. CNBC. ( http://www.cnbc.com/id/101615069)
xxxviii
( www.macrobusiness.com.au/.../foreign-property-investors-alter-social-fabric)
xxxix
Parramatta enlists heavy-hitter. The Australian.( www.theaustralian.com.au/...bill-moss/story-fnca0von1226902469325)
xl
Global real estate funds return to Asia-Pacific. South China Morning Post. 3 June 2014.
(http://www.scmp.com/property/international/article/1523811/global-real-estate-funds-return-asia-pacific)
xli
Is the end of “cheap China” imminent? Peter Hartcher. Canberra Times. April 22 2014.
(http://www.canberratimes.com.au/action/)
xlii
China’s property dragons are just warming up. Simon Johanson. The Sydney Morning Herald. April 12 2014.
(http://www.smh.com.au/action/)
xliii
Tony Abbott, Chinese eager to finalise free trade deal. Mark Kenny, Phillip Wen. The Sydney Morning Herald.
April 10, 2014. ( http://www.smh.com.au/action/printArticle?id=60036857)
xliv Social Mobility and Child Poverty: End Child Poverty response to the Child Poverty Strategy consultation
May 2014. (www.cpag.org.uk/.../ECP%20response%20to%20Child%20Poverty%20Strategy.pdf)
xlv
Karabell, Zacahry. (Mis)leading Indicators”: Why Our Economic Numbers Distort Reality. Foreign Affairs.
March/April 2014.
xlvi
Pei, Minxin. Professor of Government at Claremont McKenna College. How China and America See each
Other. And Why They Are on a Collision Course. in review of “In Debating China: The U.S. – China Relationship
in Ten Conversations”. Edited by Nina Hachigian. Oxford University Press.
xlvii
Eric X. Li. “The Life of the Party: The Post-Demographic Future Begins in China”. Foreign Affairs.
January/February 2013.
xlviii
Fareed Zakaria. Can America be Fixed /: the New Crisis in Democracy. Foreign Affairs. January/February
2013.
xlix
Australia has the third highest house price-to-income ratio in the world. ABC News 14 June 2014.
(http://www.abc.net.au/news/2014-06-12/australia-has-third-highest-house-price-to-income)
l
Chinese buyers to invest $44b in Australian real estate: analysts. ABC News 5 March 2014.
li
The Conversation 10 Apr 2014. Chinese Housing in Australia Data.
Demographia. 10th Annual Demographia International Housing Affordability Survey: 2014.
(www.demographia.com)
liii
China’s corruption crackdown could deliver a blow to Australia’s property
liv
Australia Startled by Foreign Investment. The New York Times. 1 Aug 2014.
(http://www.nytimes.com/2014/04/25/greathomesanddestinations/australians-startled-by-real-estate)
lv
Politicians hold $300 million in property so how should they influence housing policy. Dallas Rogers.
Research Fellow. Urban Research Centre. University of Western Sydney. The Conversation. 7 August 2014.
lvi
Secret path for Chinese on property buying spree. The Sydney Morning Herald. July 16 2014.
(http://www.smh.com.au/action/print/Article?id=60163401)
lviiLeaked records reveal offshore holdings of China’s elite. The International Consortium of Investigative
Journalists. Marina Walker Guevara, Gerard Ryle, Alexa Olesen, Mar Cabra, Michael Hudson and Christoph
Giesen. January 21, 2014. (http://www.icij.org/offshore/leaked-records-reveal-offshore-holdings-chinas-elite)
lviii
Currency Wars: The Making of the Next Global Crisis. James Rickards. Portfolio/Penguin. 2012.
lix
The big dangers of our millionaire visas. The Australian Financial Review. 20 August 2014.
(http://www.afr.com/p/world/the_big_dangers_of_our_millionaire_visas
lii
Dr Peter Willans
peter.willans@bigpond.com
Contact: 0438307435