China's wealthy parking profits in Australia's real estate market
17 Feb 2014
Financial policies in China are driving an interest in the Australian real estate market.
Wealthy Chinese are looking for better returns than they can get at home, and the Australian housing market is now second only to the US in its attractiveness for investors.
In 2012, mainland Chinese buyers spent more than $AU4 billion in Australia, according to the Foreign Investment Review Board. Investment, lifestyle is a major consideration. Quality education and medical and of course immigration is a strong factor.
Australian media headlines often trumpet the multi-million dollar sales of waterfront mansions.
In the Sydney harbour suburb of Mosman, 30 to 40 per cent of sales over $3 million have reportedly been to Chinese buyers.
John Lee, Adjunct Associate Professor at Sydney University, says this section of the market attracts the extremely rich who will pay above market rates.
"We're talking about the top one or two per cent of (China) and their relatives buying into the Australian market."There are capital controls in China, it's very hard to take money out of the country. Buying real estate is one scheme that quite a lot of the ultra-rich in China have come up to get money out of the country into safe assets like Australian residential property. So it's not so much that they want to own something in Australia it's more that they want to get money out of the country."
Much of it is illegal. So for example you might want to set up a false trading company overseas, you declare the money being sent overseas is for the purpose of trade when it's actually for investment.
And it's been estimated that in the last 10 years almost $US4 trillion has left China through this kind of method."Another way is to go through various financing companies who have come up with fairly sophisticated schemes. But once again it's really only the very rich in China who have access to these sort of schemes," he said.
There are several reasons prices are strong including low interest rates. John Lee says the Chinese trade is not large enough to be of concern or market distorting in Australia. But he adds the super rich could pose a problem for China in the longer term.
Estimates suggest that the top one per cent of urban households in China own 30 per cent or more of liquid assets like cash, savings, stocks and bonds."Estimates have been done that if the very rich start taking anywhere above 20 per cent of their net wealth out of the country... that will create a significant liquidity problem in China. So obviously if the credit dries up, then economic growth dries up," Mr Lee said.
The Chinese appetite for residential real estate is potentially more of a problem for China than for Australia.Canada, Hong Kong and Singapore have reacted to rising demand and the push on prices to put in controls on international property investors.