Chinese real estate invasion? Not according to the data, fellas
Today Paul “Magic Water” Sheehan offered his take on the impact of Chinese buyers on the Sydney residential property market. He warned darkly in today’s Sydney Morning Herald:
“The growth of the Chinese middle class has been so explosive, and on such a scale, that it has the capacity to affect Australia in ways that will need to be controlled if some trends continue to accelerate. Notably home buying.”
Sheehan, it seems, is was most worried about young people:
“First-time buyers, young buyers, are now caught in a pincer movement between superannuation and Chinese investment.”
A pincer movement. Wow. But Sheehan was merely echoing Clive Hamilton, who recently wrote an article for The Guardian originally headlined “Wealthy Chinese buyers are making Sydney’s housing problem worse”. Hamilton’s piece commenced:
“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” was responsible, Hamilton claimed — a “flood of unregulated investment”. It touched on the same themes as Sheehan’s piece later would: young people priced out of the market, official indifference, how Hong Kong doesn’t let the same thing happen.
But the headline on Hamilton’s piece was changed to “Foreign demand is making Sydney’s housing problem worse” after an outcry from readers. The Guardian offered an apologia almost as long as the article itself admitting a number of problems with Hamilton’s article, although “the author stands by his opinion”.
Hamilton and Sheehan aren’t the only ones, though. This “flood” of unregulated money from China is becoming a staple of media real estate coverage, especially in Fairfax papers, which have carried articles about the Chinese property “splurge” as real estate prices, especially in Sydney, have soared.
Well, let’s try some facts, courtesy of the Foreign Investment Review Board’s 2012-13 annual report, which has data on who is buying residential property. Total foreign investment in residential property in Australia fell in 2012-13, from $19.7 billion to $17.2 billion. That was because of a fall in “off-the-plan” purchases; purchases of existing dwelling stock increased to $5.4 billion (it had fallen in 2011-12), and purchases of vacant land had more than doubled to $1.4 billion. Victoria and New South Wales dominate as destinations for foreign investment in residential property, garnering around $5.8 billion and $5.5 billion respectively.
But importantly, foreign residential real estate investment skews toward new dwelling construction: in 2012-13, despite the fall-off in off-the-plan purchasing, $8.64 billion in foreign investment was for new dwellings, with a further $2 billion for other development, while investment in existing dwellings was $6.4 billion. The predominance of new dwelling investment in foreign residential investment is dramatically at odds with the rest of the market, where new dwelling investment is a fraction of housing finance.
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