A FLOOD of Chinese money could be about to create a surge in demand for Australian property, experts have warned.
The Chinese government is forging ahead with plans to allow its citizens greater freedom to invest in stocks, bonds and real estate overseas, removing limits on such transactions.
Wealthy Chinese already make up a large proportion of overseas investors in Australia, and the relaxing of capital controls will make it easier for foreign buyers to enter the local market.
However, UNSW economist Tim Harcourt said the effect of foreign investment on house prices was greatly overshadowed by other issues such as baby boomers pricing out first-home buyers.
“We jump on the Chinese issue because it’s very visible,” he said. “All countries are a bit xenophobic — I’ve been everywhere from Colombia to Africa, and Chinese investment is a universal phenomenon, everyone rages about it.”
But he pointed out there was a strong push in China to encourage its citizens into as much outward investment as possible.
“It’s a bit of a hedge,” he said. “They don’t want things to heat up too much [domestically], and they want more influence overseas through foreign investment. That’s a strategic foreign policy objective in China.”
Mr Harcourt said while Chinese investment in manufacturing and mining sectors was generally a good thing for Australia, pumping money into straight residential housing was “not particularly” good for anyone except the construction industry.
Tony Crabb, head of research at major real estate and research firm Savills Australia, played down the likely impact of easing capital controls, saying the amount of Chinese investment in Australia was the “tip of the iceberg”.
“The money that is coming here will keep coming here, and it’s a trickle of all the available capital,” he said. “We think we’re getting a lot, but we’re not.”
Mr Crabb pointed out that there would be an estimated four to five million people of Chinese heritage living in Australia within the next 20 years.
“[As a result] we’re going to double the number of wealthy people in the country, and by that I mean filthy stinking rich. We’re not doubling the amount of property for them to buy in Point Piper and Brighton,” he said.
“The Chinese are going to come here and buy the whole lot and they’re going to live there, just as the Russians and Saudis have done in Knightsbridge and Chelsea in London — that’s just the way it is all over the world.
“The rich come in and live where they want to live. That pushes everyone else out and they moan and groan. In those situations you can either tell them they can’t come, or let her rip. I always say, shouldn’t the person who’s selling the house be allowed to sell to the highest bidder?”
He said that would concertina back from the highly exclusive suburbs through the rest of the market. “What we’ll end up with is a disaster for our cities, with all the rich people owning the best-located properties, a whole bunch of bloated middle-ring suburbs, and all the poor people living miles away.”
The fault lies not with foreign investors but with state governments’ “outrageous planning systems”, he argued. “What we’ve got is the lack of the right kind of housing in the right locations.”
The warning comes after a survey by the National Australia Bank found tougher restrictions on foreign investment had done little to halt sales to overseas buyers.
According to NAB’s Quarterly Australian Residential Property Survey, the number of foreign buyers had increased to 8.6 per cent from 7.5 per cent at the start of the year.
Victoria was the most popular state for foreign buyers, where they were behind 28 per cent of all new apartment purchases, 16.7 per cent of new houses and 16.1 per cent of established houses.
The survey found while foreign buyers were less active in new property markets, they had increased their presence in established markets.
Foreign buyers were behind 16.5 per cent of all new apartment purchases in NSW, 13.1 per cent in Queensland and 12.9 per cent in Western Australia.
More than three quarters of foreign investors bought apartments valued under $1 million, with 41 per cent below $500,000. More than 16 per cent were between $1-$2 million.
According to the Foreign Investment Review Board, China has overtaken the US to become the biggest source of approved foreign investment in Australian real estate after Chinese investors more than doubled their spending last financial year.
This was the first time Chinese spending surpassed that of the US and came on the back of a $6.5 billion jump in property purchases.
The $12.4 billion in total annual spending dwarfed the $5.9 billion Chinese investors had spent the previous year and was also nearly double the spending of US investors.
However, a parliamentary inquiry last year concluded that there was no solid evidence to support the idea that foreign investors are driving up prices.
It found that concern about foreign investment came from personal submissions, while industry stakeholders tended to argue that the general population overstated the impact of overseas buyers.
“The evidence points to a continuous lack of supply in Australia as a key driver of price increases,” the report said. “Importantly, foreign investment is regarded by industry experts as vital to increasing this supply.
“Rather than causing price pressures, the evidence suggests that foreign investments may actually help keep prices lower by increasing supply.”
Industry experts argued that foreign investors tended to buy properties that were out of the price range of local first-time buyers.
The Master Builders of Australia told the inquiry that foreign investors and first home buyers rarely competed for the same properties. Similarly, the Real Estate Industry of Australia said first home buyers favoured established real estate.