Are the Chinese pushing the housing prices up?
- The crazy prices in the Sydney real estate market
(Photo by Richard Ashen)
Last weekend (30 May 2015), a small racist group “The Party for Freedom” protested in Sydney Chinese Consulate. They alleged that the “Chinese real estate invasion” caused the housing price scare.
The NSW property auction clearance rate last week reached 86.51%, a new record. In addition, according to an Australian Property Monitor (APM) report, in the last quarter (Dec 2014), the median house sale price in Sydney was $873,786, which has grown by 14.1% over the last 12 months.
There were vast indications that the Sydney property market would continue to be hot. But what is the real reason for this hot market? Evidence indicates that Chinese investment is not the major factor; the increasing number of the population and the long-term low loan rate policy seem to be the major reasons.
According to the official statistical data from the ABS (Australian Bureau of Statistics), the median price of the established housing price in Sydney was nearly $800,000.00 last year. There is no doubt that, in the past 5 years, the residential price has raised at rocket speed.
(Tony Lin, Source: from Tonny Lin’s WeChat)
But do Chinese investors cause this shocking price? I interviewed Tony Lin, a real estate investment manager and familiar with the Sydney housing market. He works for H&T Realty Pty Ltd, one of the leading Chinese real estate agencies in Sydney. He said: “Chinese investments are a minor factor in the whole real estate price trend; only in 2014 China exceeded the USA as the biggest investor in Australia. But in some specific areas the sharply increased price would be caused by Chinese buyers, such as Burwood (NSW 2134) and Hurstville (NSW 2220) which are high-density Chinese residential areas.”
To explain the rocket-speed price in Sydney, he pointed out two major causes: enormous population and low loan rate policy. He stated that this rapidly moving trend is repeating history. I found some data on historical housing prices in the past few decades (1979-2009).
By analysing the historical data from RESIDEX, we can deduce that the median housing prices in the three capital cities doubled in each decade.
- Major causes:
According to the ABS population projection, if the current tendencies of fertility, mortality and migration level are maintained, in 2036 there will be more than 32 million people living in Australia. In NSW there would be an additional 2.5 million people to the current population. Thus, the stably growing size of the population would need a huge amount of dwellings. Tony Lin mentioned that in the recent years, construction would not meet the potential residents’ demands.
(Source: ABS Australian bureau of Statistics)
For this reason, since 2012, the property prices maintain a striking increasing speed, at a rate of around 15% per year.
- Low lending and deposit rates policy
According to a report from the Reserve Bank of Australia, cash rate is down to a record low of 2% in 6 May 2015; this implies that the banks cut their mortgage rate. Lower mortgage rates push investors to throw their cash into real estate, which in turn will likely push up the house prices in the hottest markets of Sydney.
- Chinese factors
(New immigrants: Kevin Cheng and his wife Penny Hua, Photo by Tianshui Yu)
I have interviewed some Chinese buyers include new immigrants and wealthy investors.
Kevin Cheng and his wife Penny Hua are new immigrants in Sydney; they finished their post-graduate degrees in 2014. This year, they bought a new two-bedroom apartment in Zetland (NSW 2017). They state the housing prices in Sydney are expensive, but compared with their hometown Shanghai, Sydney’s housing prices are quite reasonable. Moreover, they are attracted by the excellent natural environment and guaranteed food quality.
Kevin Cheng said: “Australia have clean air and blue sky, I don’t worry about the quality of food and drink; thus, in last year I have decided to buy a house to live here and take my parents here to live with me. But I don’t have the budget and, due to the Australian foreign investment policy, that I can only choose the new apartment. But now, I have got PR (Permanent Residence), I may consider to buy a new house next year if possible.”
In Cheng’s view, buying a house or an apartment is a need, by which he wishes to start his new life in Australia. There have been many similar cases reported in the recent year. In contrast, some wealthy Chinese investors are interested in Australian property for other purposes. They consider the education to be of a high standard and they would be able to effectively distribute their assets. Hence, Australian property is increasingly favoured by high-net-worth individuals from China, who have a huge interest in moving assets into Australia, which is seen as a safe harbour for personal property.
- Will this stop?
(Image: Constructing apartments in Wentworth point, photo by Tianshui Yu, May 2015)
Perhaps this whole trend is repeating history; and current Chinese property investors are like 1980s Japanese investors, for the same reason of the country’s remarkable economic explosion and growing accumulation of wealth.
Perhaps in the next few decades, Indian buyers will do what the current Chinese buyers are doing. This trend would not stop; we are just in a global, developing economic circle.