Foreign investment in residential property has been attracting a steady drip of mainstream media attention for months but is now starting to generate heat for the Government. What was hitherto a hot topic on real estate and property investment blogs and a call to action on xenophobic websites is now breaking out into a parallel issue to the asylum seeker debate: the Rudd Government relaxed the rules on foreigners buying residential property and now Australians can’t buy a home in their own country.
Glenn Stevens’s statement that the RBA is “giving some attention to” the issue last week will only accelerate media interest.
Most of the attention has been directed at Chinese buyers. In October last year, the Herald-Sun ran a piece on “the Asian buying spree” in the top-end property market. Last week, Adele Ferguson in the Fairfax papers reported on a survey showing concern among investors about Chinese investment. Blogs and news reports convey the compelling image of young Australian couples being outbid by Chinese investors who can “borrow at 1%”.
How anyone knows they’re being outbid by investors from China rather than fourth-generation Asian Aussies is unclear, but you get the picture.
The issue has also attracted the Housing Bubblists. Adam Schwab had a go at the issue in Crikey back in September, suggesting there may have been a link between Labor’s receipt of property developer donations and its relaxation of the foreign investment restrictions. In February, Steve Keen accused the Government of “importing a bubble” from China.
There seems to be a tinge of Sinophobia to all this. In Cairns last year, there seemed to be no concern about South African, British and Japanese investors being the most active in the Cairns residential property market. Even the Japanese, the target of considerable western fear and loathing two decades ago, now seem to be considered friendly, possibly because the idea of Japanese economic dominance now looks silly. The concern is about a flood of Chinese money.
You can see how this could turn nasty for a Government battling the myth that it has opened the door to asylum seekers. Prior to the election, Labor professed great concern about housing affordability, only to propose several Mickey Mouse solutions. Housing supply is now a key COAG issue, with Wayne Swan leading the nation’s Treasurers in an effort to address the Gordian knot of land supply, development approval processes, infrastructure planning, taxes and charges and residential development finance.
So what were the Rudd Government’s changes that were supposed to have opened the floodgates? They were announced in December 2008, with the regulations implementing them commenced at the end of March 2009. They were:
- Hotels and resorts would be treated as commercial, not residential, property under the Foreign Investment Review Board.
- Temporary residents were no longer required to notify proposed purchases of residential property to FIRB, but still banned from buying more than one property.
- The temporary resident exemption was expanded to include shorter-term visa holders, but tourists and certain business visas remained banned.
- Student visa holders were no longer limited to property purchases under $300,000.
- FIRB approval processes were accelerated.
- Foreign purchasers of vacant land required to start development within two years rather than one year, recognising that the previous 12-month period was often extended.
- The condition that no more than 50 per cent of new dwellings in a development be sold to foreign buyers was removed, as long as developers market locally as well as overseas.
- Foreign companies allowed to purchase established dwellings for the use of their Australian-based staff.
The changes were made at the depths of the GFC and intended in part to remove impediments to foreign investment in new housing stock, given the parlous state of investment in the property sector at that point. When making the changes, then-Assistant Treasurer Chris Bowen said they were intended to implemented the recommendations of Gary Banks’s 2006 deregulation taskforce, which criticised the restrictions on foreign investment. At that stage, those restrictions had been unchanged since 1989.
Tomorrow: how many foreigners are buying our houses — and why that’s the least of our housing problems.
No Sinophobia.
I live in Kew Victoria –
Went to a few auctions a year or so ago, noticed almost all Chinese at the auction and very few others.
Friend of mine (again in Kew) has been outbid by Chinese at the last 4 auctions he attended, while trying to buy a home for he and his partner.
I myself was outbid by Chinese last week at the Auction of a commercial investment property in Kew.
Many properties bought are simply left vacant.
Rudd did this to prevent to property market collapsing but like all things done without without knowing what you’re doing, it went wrong, as usual for Rudd.
Raising interest rates may not fix this as the Chinese I believe in many cases are using cash from overseas and not borrowing.
The only thing that will fix this is the reinstatement of the FIRB rules to as before Rudd stuffed it up.
And a change of Govt might help prevent further vandalism of the Australian economy.
No there’s no Sinophobia but it’s on it’s way if this isn’t fixed.
“Blogs and news reports convey the compelling image of young Australian couples being outbid by Chinese investors who can “borrow at 1%”.”
We got any proof of this? A link, that might show this wonderful Chinese bank that offers loans below world interest rates? You’ve got to wonder how they attract deposits? And the exchange rate from the Yuan to the AUD is appalling. A Yuan buys about 16cents
Glenn,
I think you should be aware that anecdotes of what you and your friend have experienced is not the best evidence and in fact is hardly evidence at all. You may be correct when you argue that Bernard is wrong, but at the very least you should wait until you have read part 2 of his story which promises to provide evidence for his argument. Then you may criticise as much as you like, so long as you support your argument with evidence that isn’t just anecdotal.
Oh dear Chris, from what I’ve observed repeatedly at the coal face this is not only evidence but the best and most reliable evidence and any amount of argument to the contrary will not alter the facts.
As usual Govt departments are last to know but I observed this over a year ago and it’s not anyones imagination.
I hope the RBA can juggle Rudd out of this one because this is a national disgrace.
Glenn,
Well, I’ll just say that there is nothing like good evidence to support an argument, and anecdotal evidence is nothing like good evidence. Unless you have attended every auction and open house since the change in laws regarding foreign investment, perhaps you could wait and see what evidence Bernard presents in part 2 of this article. Perhaps you will find that this is just a phenomenon peculiar to Kew.