An Article Re Foreign Property Investors 19=2=14 via macrobusiness

By Leith van Onselen

Clive Hamilton has written an interesting article in The Guardian arguing that wealthy foreigners are exacerbating Sydney’s housing problems:

Every weekend in Sydney, young Australian couples are turning up at auctions excited at the prospect of finally owning their own home, only to find that other bidders are wealthy foreign buyers with money to burn…

Cash pouring in from China is one of the principal drivers and this flood of unregulated investment,coupled with other factors driving up Sydney house prices, are slowly changing the city’s social fabric in a way that will be felt for generations to come. Couples planning families can no longer afford to buy in the suburbs where they grew up, where they have built friendship networks or where they work. Forced further and further west and south, they are progressively cut off from their old neighbourhoods…

Juwai.com, the leading broker connecting Chinese buyers with overseas property, estimates that 63m Chinese are rich enough to buy property abroad. It claims that over the last three years, the number of Chinese buyers in Australia has grown nine-fold, faster than anywhere else…

The impact of those buyers on Sydney property has only just begun

A good deal of secrecy surrounds the trend, yet observers know something worrying is happening…

So why is the Australian government allowing this to occur? Even the government of Hong Kong, concerned that mainland Chinese investors were pushing up housing prices, slapped a 15% tax on outside buyers. It worked…

While not the only factor driving up house prices – negative gearing has a lot to answer for – the impact of Chinese investment has been substantial.

…housing is not just another asset. It’s where people live, put down roots, raise families and join in their communities… A prudent government would see where we are headed and take steps now.

While there are likely elements of truth in Hamilton’s claims, it is impossible to make an objective assessment as data on foreign investment is woeful. As Fairfax’s Chris Vedelago discovered first hand when trying to gain data on the extent of foreign investment, such information is next to impossible to obtain and is treated as if it was a state secret. Three Freedom of Information (FOI) requests later and the best Vedelago could come up with was a stack of blanked-out and redacted pages from FIRB.

Enforcement of the foreign ownership rules appears equally inadequate. As the mythical Chodley Wontok found out when testing the efficacy of FIRB’s approval processes using bogus visa and passport information, the purported checks and balances in the system designed to prevent foreigners from purchasing pre-existing homes failed dismally, suggesting the rules are little more than window dressing.

A related source of buyer frustration is Australia’s rapid population growth, which is being driven mostly from immigration (see next chart).

ScreenHunter_1320 Feb. 19 10.31

This growth is placing strain not just on housing, but also roads, public transport networks, and other infrastructure. While it is unfortunate that Asian Australians have born the brunt of what is effectively a failure of government policy and planning, such anti-foreign sentiment is only likely to grow as long as immigration levels remain high and underinvestment in infrastructure and housing continues.

Absent a substantial reduction of Australia’s immigration intake, the best way to counter concerns around foreign investment is to first tighten-up the reporting process and make it transparent, so that an objective assessment can be made about the impact of foreign investors. And second, abandon the urban consolidation policies pursued by Australia’s state governments, along with tax incentives like negative gearing. Both policies are incompatible with Australia’s high-growth population policy, act to force-up house and land prices, and worsen affordability.

With improved housing affordability and reporting, concerns around foreign investment would dissipate, since domestic buyers would no longer feel shut-out and wouldn’t be in search of a scapegoat.

But as long as Australia’s governments continues to pump demand and choke supply, while hiding the extent of foreign investment, buyers will continue to miss-out, frustrations will grow, and they will lash-out.

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