The Chinese are coming!
That’s the take away from a new Credit-Suisse report that shows Chinese investment in Australian property is growing.
The report estimates Chinese buyers are snapping up 18% of the new dwelling supply in Sydney, and 14% of the supply in Melbourne.
Over the past seven years, Chinese investors have purchased $24 billion of Australian housing.
The reaction has been hysterical. Though it’s been four decades since the White Australia policy ended, Australian xenophobia is alive and well.
Racism and Chinese investment…We’ve been here before
This isn’t the first time that we’ve heard of the Chinese investor bogyman.
You may recall hysterical reports about Chinese investors buying up Aussie farms, and dire warnings from National Party politicians about Australia losing control of its agri-businesses.
It was a populist line. A Lowy Institute Poll found 81% of respondents were against ‘the Australian Government allowing foreign companies to buy Australian farmland to grow crops or farm livestock’, and 56% felt ‘the Australian Government is allowing too much investment from China’.
But the Chinese hold no more than 3% of Australian agricultural land. The fact is agriculture in this country is in desperate need of capital injection to reach growing Asian markets. Yet the agrarian socialists of the National party and the famers they represent can’t get over their unreformed suspicion of non-Anglos.
That same racism is behind our suspicion of Chinese property investors.
What else could describe our fear Chinese investors are pricing out young, honest, blue eyed, fair haired first home buyers? Or blaming Chinese investors for rising property prices?
You may well worry about the prospects of first-home buyers. After all, they are at their lowest share in decades. But it’s not the fault of the Chinese.
Australian housing policy, not the Chinese, pricing out first home buyers
There are two major factors pushing up property prices in Australia: a lack of supply, and a tax regime that favours existing property owners.
First, the supply issue. There’s simply not enough land being released for development.
Australians pack themselves into capital cities on the continent’s coastal fringes. Because our cities are sprawling and inefficient, governments have attempted to reduce urban sprawl by slowing the release of land.
A solution to this supply problem is embracing greater density, but there’s a big road block in the way: existing property owners in inner suburbs. In the name of protecting the character of their neighbourhoods, they block development while handily ensuring that prices in inner suburbs continue to price new entrants out.
Then there’s the tax regime — specifically, negative gearing. Owning a second property is a massive tax minimisation scheme — you’d be mad not to do it.
Unfortunately this loophole that has created hundreds of thousands of home grown investors, and they have been driving up prices for decades. Good for them, bad for first home buyers.
On top of these unsustainable rises in Australian property prices, first home buyers are faced with the massive hurdle of stamp duty, an inefficient and unfair tax that makes it that much harder for new entrants to join the property market.
None of these things are the fault of Chinese investors, but instead decades of policy tilted in favour of existing property owners.
Still, nothing like blaming foreigners for your problems, eh?
Callum Denness
Contributing Editor, Money Morning
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