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| Chinese investment in the housing market has been overhyped | Chinese investment in the housing market has been overhyped |
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| The federal Government has announced it will be holding a parliamentary inquiry into foreign investment in Australia’s real estate market. | The federal Government has announced it will be holding a parliamentary inquiry into foreign investment in Australia’s real estate market. |
| The announcement follows reporting and commentary in various media (including Guardian Australia) on how locals are being priced out of the property market by Chinese investors. Most recently these articles have relied on information either from the Foreign Investment Review Board (FIRB), or a Credit Suisse report which analysed the FIRB numbers along with immigration figures to estimate investment from Chinese nationals. Credit Suisse put its estimate of Chinese investment in Australian property at $5.4bn in the last financial year. | The announcement follows reporting and commentary in various media (including Guardian Australia) on how locals are being priced out of the property market by Chinese investors. Most recently these articles have relied on information either from the Foreign Investment Review Board (FIRB), or a Credit Suisse report which analysed the FIRB numbers along with immigration figures to estimate investment from Chinese nationals. Credit Suisse put its estimate of Chinese investment in Australian property at $5.4bn in the last financial year. |
| The FIRB provides a breakdown of foreign investment in real estate, but only includes the top handful of countries and lumps residential and commercial real estate together. Here’s how the past 10 years of investment look: | The FIRB provides a breakdown of foreign investment in real estate, but only includes the top handful of countries and lumps residential and commercial real estate together. Here’s how the past 10 years of investment look: |
| China has become the highest investor only in the last financial year, overtaking the US as the biggest investor. Chinese investors spent about $5.9bn in 2012-13. This would be even higher if the $649m from Hong Kong is added, but the FIRB split these into different categories. | China has become the highest investor only in the last financial year, overtaking the US as the biggest investor. Chinese investors spent about $5.9bn in 2012-13. This would be even higher if the $649m from Hong Kong is added, but the FIRB split these into different categories. |
| Of this total, it’s not clear how much is residential, and how much commercial, as the FIRB doesn’t provide this split by country. But there is an overall split for foreign investment dollars by property type, and the ratio is two-thirds commercial to one-third residential. So, if Chinese investors are split along the same ratio, we’re looking at only about $1.9bn of investment in residential properties in the last financial year. | Of this total, it’s not clear how much is residential, and how much commercial, as the FIRB doesn’t provide this split by country. But there is an overall split for foreign investment dollars by property type, and the ratio is two-thirds commercial to one-third residential. So, if Chinese investors are split along the same ratio, we’re looking at only about $1.9bn of investment in residential properties in the last financial year. |
| On the whole, investors from the US have often spent far more than those from China, and Canada has also surged strongly in the past year. Yet we’ve heard little about Americans and Canadians coming here and “pricing locals out of the market”. | On the whole, investors from the US have often spent far more than those from China, and Canada has also surged strongly in the past year. Yet we’ve heard little about Americans and Canadians coming here and “pricing locals out of the market”. |
| It’s possible that American and Canadian investors aren’t buying as many residential properties, and are focusing more on commercial. The number of foreign investment approvals (this includes all sectors, not just real estate) for China is far greater than for any other country: | It’s possible that American and Canadian investors aren’t buying as many residential properties, and are focusing more on commercial. The number of foreign investment approvals (this includes all sectors, not just real estate) for China is far greater than for any other country: |
| This may indicate a large number of smaller-value investments in residential property (Credit Suisse certainly think it does). Real estate certainly has more approvals than any other sector, with 12,647 to the next highest 289 approvals, for mineral exploration and development. And residential accounted for most of these – 11,668 approvals to 357 for commercial. | This may indicate a large number of smaller-value investments in residential property (Credit Suisse certainly think it does). Real estate certainly has more approvals than any other sector, with 12,647 to the next highest 289 approvals, for mineral exploration and development. And residential accounted for most of these – 11,668 approvals to 357 for commercial. |
| One other detail about the Credit Suisse report – when counting the total amount of investment from Chinese, they included both non-residents (FIRB data) and permanent residents (estimated from immigration figures, average home ownership figures and median house prices), which is why their total varies so much from the FIRB figures above. | |
| In the Credit Suisse analysis, permanent residents accounted for almost 50% of the total $5.4bn Chinese investment figure. It’s not entirely clear why they grouped permanent residents in with foreign investors, since the two are very different – permanent residents live, work, own businesses and pay taxes in Australia. Taking their methods further, New Zealanders would be of more concern, as New Zealand accounted for 17.7% of new permanent residents in the last financial year, compared with the 12.9% from China and Hong Kong. | |
| Apart from all this, the rules around foreign investment in real estate are explicitly aimed at increasing housing stock overall and benefiting the building industry. Non-residents can buy a new development, or redevelop an existing property, but only if it results in at least two new dwellings for each one acquired. They cannot simply buy an existing property. Temporary residents can acquire one existing property for use as their residence in Australia. | Apart from all this, the rules around foreign investment in real estate are explicitly aimed at increasing housing stock overall and benefiting the building industry. Non-residents can buy a new development, or redevelop an existing property, but only if it results in at least two new dwellings for each one acquired. They cannot simply buy an existing property. Temporary residents can acquire one existing property for use as their residence in Australia. |
| In January 2014 purchase of new dwellings totalled 2,786 to 42,937 for established dwellings (using the ABS trend estimates). Assuming this same ratio holds over the year, this means foreign investors would be competing only with a very small subset of local home buyers, as the vast majority of locals would be buying an established property. | In January 2014 purchase of new dwellings totalled 2,786 to 42,937 for established dwellings (using the ABS trend estimates). Assuming this same ratio holds over the year, this means foreign investors would be competing only with a very small subset of local home buyers, as the vast majority of locals would be buying an established property. |
| So the actual amount from non-resident Chinese investors going into residential property is probably a fair bit lower than suggested by some recent news reports, and they are rarely competing with most local home buyers. It would be fair to say the impact of Chinese buyers has been somewhat overstated. | So the actual amount from non-resident Chinese investors going into residential property is probably a fair bit lower than suggested by some recent news reports, and they are rarely competing with most local home buyers. It would be fair to say the impact of Chinese buyers has been somewhat overstated. |
| Indeed, other analysts have said low interest rates, increased housing affordability and domestic investors are doing much more to push up prices than foreign investors. | Indeed, other analysts have said low interest rates, increased housing affordability and domestic investors are doing much more to push up prices than foreign investors. |