Real Estate Investment by Foreign Residents : Top Secret

Written by admin on January 4, 2012 – 10:48 pm

It was December 2008. Three months earlier Lehman Brothers had collapsed – credit markets have frozen over. Two months earlier, Prime Minister Kevin Rudd announces the First Home Owners’ Boost, designed to save the housing market, or at least temporary, by encouraging first home buyers to bring forward their purchases and help prop up ailing demand.

By now Australian houses prices had come off 4.7 percent. During all the panic, the Rudd Government announces legislation to ‘streamline’ some of the administrative requirements for the Foreign Investment Review Board (FIRB). According to the Government, the changes would enable the FIRB to concentrate on larger issues in the ‘National Interest’.

But as the Australian public would later learn, this streamlining of administrative requirements really translated into the opening up the floodgates to allow temporary foreign residents such as students to buy property of any value in Australia, effective from the 18th December 2008. Previously they could only spend up to $300,000 on their primary place of residence in Australia.

With the housing market oversupplied, and demand dwindling, many questioned the timing of the announcement. Was it just another measure to save our already highly inflated housing market? If it was, you have to admit it was a genius scheme. Domestically, mortgage approvals had fallen off a cliff. Why not enlist the help of foreigners? It was cheaper, a lot cheaper, than giving first home buyers free money.

By March 2010, the Australian media started asking for data on just how many foreign residents were buying houses in Australia. There were endless reports each weekend of Australian’s being outbid by an army of Chinese residents, effectively pricing Australian’s out of their own housing market. But the ‘streamlining of administrative requirements’ actually meant no records were kept, or more specifically it would seem that these foreign residents no longer needed to lodge applications with the FIRB. There was public outcry and no real data to support just how big or small this issue actually was.

The outcry was so intense, that on the 24th April 2010, a tightening of foreign investment rules relating to residential property was announced, complete with a package of new civil penalties, compliance, monitoring and enforcement measures. The government even set up a 1800 hot-line for residents to report suspicious property buyers and help calm a heated public. It was sold to the Australian public as a reversal of the changes made in December 2008. But some are not convinced.

The problem is, there is no longer any transparency in the sector.

Only on Friday, The Sunday Age’s Property Reporter Chris Vedelago vented his frustration on a Freedom of Information (FOI) request to access this information. He quote’s the government response in his article – ‘‘Around 19 documents have been identified as potentially falling within the scope of your request. Given the nature of the documents I envisage that most, if not all, of the documents will be exempt from release,’’

You must admit, it doesn’t portray a good image of the government. As Chris writes, the FOI wasn’t targeted at troop movements in Afghanistan, the prime minister’s private schedule or the names of ASIO’s anti-terrorism informants? “No, it was a request for some basic facts and figures about the state of foreign investment in Australia’s residential real estate market.”

What do they have to hide? Is there a loop hole in their legislation?

A day after Chris’s article, The Courier Mail reported under the headlines “Foreigners outspend locals on Queensland residential property in 2011” that foreign buyers’ had spent $334.2 million on residential property in Queensland. Based on research by Colliers International, foreign Chinese increased their spending on Queensland real estate by 50 percent over the year prior, to $106.8 million.

While the figures presented in the article didn’t quite tally, about 70% of the sales were as investments with the other 30% for owner occupiers.

The Weekend Australian Financial Review printed a two page story in the December 17-18, 2011 edition under the headlines of “Chinese prop up property market”. It writes “While vast tracts of the Australian property market suffered the staggers this year, the Chinese kept Harry Triguboff’s cement mixers turning.” If you don’t know, well known billionaire Harry Triguboff AO is managing director of Meriton Apartments, regarded as Australia’s largest property developer. According to the article, 70% of Meriton’s sales are to Asians notably the Chinese.

Justin Wang, founder of Property Investors Alliance told the AFR, “If you sell to demand overseas, then you will find the settlement is not certain. I think the [Australia] government should kept a tight policy and not open the door to overseas investment. It’s very dangerous. The big danger is lots of speculators come here and if something goes wrong, it will crash.” According to figures from BIS Shrapnel and published by the AFR, Justin has 8 percent market share of new apartment sales in Sydney, selling 600 apartments a year, with 95% of them being Chinese.

Justin’s comments makes you wonder what happens when foreign Chinese residents find out that perpetual growth in real estate is not guaranteed and prices can and do fall? – just like what mainland China is experiencing now. Will this cause these investors to abandon Australia, or will it have the opposite effect and they flock here to a ‘strong and stable economy’. What ever the result, we can only have a guess at what the consequences will be without accurate and transparent data on foreign investment in Australia’s real estate market.

And has anyone noticed the Sydney Morning Herald is now reporting on Chinese house prices, down for the fourth month.

» Australia for Sale – Who Crashed the Economy, 27th March 2010.
» Foreign investment is overheating our property market – The Punch, 10th April 2010.
» Australian Federal Government gets tough on foreign ownership rules – News Limited, 24th April 2010
» Secret government business – The Age, 30th December 2011.
» Foreigners outspend locals on Queensland residential property in 2011 – The Courier Mail, 31st December 2011.
» China’s house prices fall for fourth month – The Sydney Morning Herald, 4th January 2012.


Posted in Australian Economy, Australian Housing, China, Foreign Investment Review Board | 8 Comments »

8 Comments to “Real Estate Investment by Foreign Residents : Top Secret”

  1. AverageBloke Says:

    I just emailed Four Corners a link to this article with the following comment:

    I’ve just read a rather disturbing article from a reputable Australian Housing Bubble Awareness website.

    I think your program could do the Australian public a great service by investigating why our Government is so hellbent on keeping our inflated housing market propped up at the expense of working Australians.

    If as the article explains that the FIRB or other Government bodies are tampering with the FOI rules with regards to Foreign Property Investment, what are they trying to hide?

  2. arthur ponzirelli Says:

    I think Chris needs to focus some of his attention on the Prime Minister. Her other half gets a job selling apartments to foreigners in 2007, after he’s had no link whatsoever to any comparable job previously. Around the same time the Government lifts the $300K restriction on foreign property ownership, whilst opening the migration floodgates through dodgy education schemes. Large scale developers at the time deny any impropriety. We don’t need the data to tell us it’s had a massive impact on not only the economy (positive, now negative), but the home ownership aspirations of many young Australians. How obvious is it?

    http://www.realestatesource.com.au/developer-employs-julia-gillards-partner-to-sell-apartments.html
    http://www.theage.com.au/national/pm-defends-partners-property-job-20100629-zj9y.html

  3. the_mainlander Says:

    Excellent post thank you.

  4. Rocket Man Says:

    It is quite obvious the Government wants to keep propping up house prices without actually coming out and saying so because this would fly in the face of their election promise of making homes more affordable. They are worried about the voters who have large mortgages (especially for investment properties) who will blame them if house prices fall. It makes me laugh when property spruikers and the Government keep insisting for more interest rate cuts when they are already below the long term average. The problem is the size of the loans people need to commit to not the interest rate. As for the Chinese they should speak to some Japanese who got burnt with overvalued Australian property 20 years ago.

    It will be interesting to see if Four Corners will expose the Government and FIRB over the rules regarding foreign investment into property (Well done Average Bloke for alerting them). The Chinese are also buying agricultural land at top prices which should also be investigated.

  5. Fred Says:

    This article is somewhat xenophobic. The “Chinese”are not the problem here but a combination of easy credit and restrictive Town Planning which are both based on the”British”model. The biggest foreign investors are also British not Chinese, not that foreign investment is a bad thing without it Australia would be worse off.

  6. Rupert Says:

    @Fred – How can the British be the biggest foreign investors? The exchange rate sucks, our economy in the UK is in the doldrums and our property market is heading downward. I’m about to emigrate to Oz and I am loathe to change ANY of my sterling into dollars at the current rate. Also property in Australia is way over-valued, so what British idiot is going to invest in Australian property and land? No-one can afford it!

  7. James Bond Says:

    Rupert,

    I’m in the same boat but already here. I prefer renting whilst house prices are at these levels but the strongest deterrent is $1.50 to the

  8. Rupert Says:

    @James Bond – Tell me more about your rental experience, it sounds awful. I’ve rented my last three homes in London and each time, I’ve dealt direct with the landlords (after the agent took their commission) because landlords don’t want agents managing their properties for them.

    I can understand an agent being scrupulous in vetting prospective tenants, but why would it be as bad as you say? Surely they want the business, no? When I’ve come across repugnant estate agents here in the UK, I walk away. Eventually landlords will be asking why an excellent tenant like me has gone elsewhere. “Sorry Mrs Jones, I was vicious and repugnant, so I lost a client with excellent references who could pay a years up front. But he had two indoor cats and wanted to put pictures up, so I laughed in his face. Shouldn’t I have done that Mrs Jones”. It doesn’t make business sense. What’s the situation in Oz?