The China Factor

A Sydney property developer who is working with Chinese investors told me that if Chinese stopped buying in areas that are popular with Chinese home buyers, the value of these local markets would fall by about 25 per cent.

The same is happening in parts of Melbourne, where segments of the market are booming thanks to Chinese demand.

It was inevitable, given the sheer size of the Chinese economic revolution and new restrictions on property investment being imposed in China, that the impact of China's emergence would start to show up in the Australian housing market.

The Chinese upper middle class now exceeds 100 million people. This is about five times the population of Australia. It is 10 times the size of the Australian middle class. Add to this Chinese investors from Singapore and Hong Kong, both wealthy and property-obsessed city states, plus investment from ethnic Chinese in Malaysia, and the weight of Chinese money being invested in the Sydney and Melbourne property markets has become a market driver.

Changes made by local governments in China are now creating waves in Sydney. In response to an overheating investment property boom, the local government in Beijing imposed a 20 per cent capital gains tax on profits from a second home. It also restricted single people to owning a single home. And banks are no longer allowed to finance the purchase of a third home. (It has to be cash.) Other major Chinese cities have imposed similar restrictions in the past year.

If the growth of the Chinese middle class continues to be exponential, and the weight of Chinese money flowing into Australia reflects exponential growth, Australian politicians may have some decisions to make, and some lines to draw, if the weight of Chinese investment in mining, real estate and agriculture starts to crowd out local investment.

China is the third-biggest foreign investor in Australia and likely to soon overtake Britain as the second-biggest investor after the US, if it hasn't done so already.

Total inflows of Chinese investment exceed $16 billion a year, according to the Foreign Investment Review Board.

Given the healthy relationship between the two countries, which Prime Minister Tony Abbott is committed to improve after problems emerged with Mandarin-speaking Kevin Rudd, China is projected to become Australia's biggest foreign investor as it shores up strategic reliable sources of raw materials.

Australia ranks highly with China as a stable investment environment and a free trade pact between Australia and China, which the Abbott government wants to re-energise after six years of stagnant negotiations under Labor, would accelerate the integration of the two economies.

The cultural bridges established between Australian and China are growing rapidly, which also has an economic impact. China is Australia's biggest market for education. It is also the largest market for inbound tourism and by far the fastest growing. China saved Australian tourism from recession.

The same could be said for education, especially after controversies dampened demand from India. At any time, about 100,000 students from China and Hong Kong are studying in Australia.

The impact of immigration is also considerable and cumulative. More than 400,000 people born in China or Hong Kong have become permanent residents in Australia. The number of immigrants from China continues to exceed 30,000 a year. The number of Australians who speak Mandarin or Cantonese is more than 600,000. The number of people in Sydney who identify as having Chinese heritage is now more than 360,000, or 8 per cent of the population.

This is a significant cultural bridge to an emerging giant economy and a culture of investment. It is having an impact on the de facto religion of Sydney - real estate. Source: P Sheehan SMH

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