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Locals priced out by $24b Chinese property splurge – March 5th 2014

Buyers at a display centre.Buyers at a display centre. Photo: Janie Barrett

Close to one fifth of new properties in Sydney are being bought by wealthy  Chinese investors and the flood of money is set to continue. A generation of Australians are being priced out of the property market.

Using data from the Australian Bureau of Statistics and the Foreign  Investment Review Board, Credit Suisse estimates that Chinese buyers account for  18 per cent of new property purchases in Sydney, and 14 per cent of the supply  in Melbourne. This does not include second-hand homes.

Chinese buyers are keen on east-coast property.Chinese buyers are keen on east-coast property.‘‘A generation of Australians are being priced out of the property market.  Many face a life time of renting,’’ Credit Suisse analysts Hasan Tevfik and  Damien Boey said. There are currently 1.1 million millionaires in China who could easily afford  properties in Australia’s two most expensive markets, Credit Suisse says in a  research note.

Wealthy Chinese buyers have purchased $24 billion of Australia housing in the  past seven years, and over the next seven years an additional $44 billion will  be spent on residential property, Credit Suisse estimates.

Chinese top the list of foreign investors in Australian residential property.Chinese top the list of foreign investors in Australian residential property.  There was $17.2 billion worth of approved residential property investment  coming in down from $19.7 billion in the previous period, according to the Foreign  Investment Review Board. Of the 2013 total, $5.6 billion was approved for residential properties in  New South Wales. That number may seem large, but across the whole property market the effect  dissipates. There is, on average, a 6 per cent turnover annually in Australia’s property,  according to the Reserve Bank of Australia. The total value of Australia’s property market is $5.02 trillion, according  to the ABS, so yearly turnover in the housing sector would is roughly $360  billion.

Chinese buyers are currently spending $5.4 billion a year on Australian  properties, Credit Suisse said, with the split relatively even between new  settlers and others, which include investors, developers and temporary  residents.

The rise in domestic house prices, while marginally impacted by Chinese  investors, is a result of low interest rates, increased affordability and  domestic investors, not foreigners, said Deutsche Bank economist Phil  O’Donaghue.

‘‘The point that gets lost in this debate very often is that nobody focuses  on the rules, which are pretty clear for a foreign investor. The principle that  guides the FIRB policy is that foreign investment should increase the housing  stock,’’ Mr O’Donaghue said.

Chinese investors may be pushing new house prices higher, which is locking  out local first-home buyers, but they are not the reason for rises in  second-hand home prices.

That doesn’t bode well for first-home buyers who struggle to break into the  market. First-home buyer activity, as a proportion of total borrowers, is near  record lows at 12.7 per cent of total loan approvals, according to the ABS.

First-time buyers in February comprised less than 10 per cent of all  mortgages processed by mortgage broker AFG for the first time since June  2010.

The numbers are the most dramatic in NSW where first-home buyers make were  responsible for just 3.4 per cent of AFG mortgages, down from an already very  low 4.5 per cent in February last year. Victoria’s first-home buyers took out  10.3 per cent of mortgage, down from 17.1 per cent last February.

Over the last 12 months, property prices in capital cities have jumped 10 per  cent, according to the RPData-Rismark home index.

The rise was most severe in Sydney, where prices rose 14.6 per cent, pushing  the median house price to $746,640.

The figures presented by Credit Suisse might even understate the true picture  of Chinese investment in Australian property.

That’s because there are alternative means to do so which fall outside of  readily trackable measures of this trend, such as when a Chinese national  provides the money for an Australian-based family member, friend or solicitor to  purchase a property.

“Or when an Australian citizen sells her apartment in Shanghai and switches  into a Melbourne Docklands flat,” the strategists said.

The four measurable routes to the so-called “Quarter Acre Dream” are a  Chinese citizen buying off-the-plan in Australia with FIRB approval; a Chinese  citizen with temporary residential needs buys a house through the Significant  Investor Visa scheme ($5 million and higher); purchase of a property for  redevelopment purposes by a Chinese citizen through FIRB approval; and finally,  Chinese settlers with permanent residential status who doesn’t need purchase  approval.