"We ain't seen nothing yet" according to Colonial First State Global Asset Management chief economist Stephen Halmarick, in reference to Chinese investors pushing up Australian property prices.
1 in 6 new properties are being bought up by foreign, mostly Asian, mostly Chinese investors according to several news reports, and that is expected to rise even higher. 1 in 8 existing homes is also going into foreign hands.
Overseas buyers accounted for almost 16% of total demand for new properties, and as high as 25% in Victoria, according to the National Australia Bank Ltd's (ASX: NAB) residential property survey.
Many of those foreign buyers appear to be buying up high-end apartments, according to NAB chief economist Alan Oster, and as you can see from the chart below.
The reasons are many…
- The falling Australian dollar means our houses and properties are cheap
- Many Chinese have family connections in Australia
- For personal use, such as sending their kids to university or school here
- Restrictions imposed on Chinese property investment forcing a rising middle class to look outside the country for investments
- Plunging Chinese stock markets mean investors are looking for more stable investments
- For many Chinese, buying property in a foreign country is more like an insurance policy, so they are willing to pay whatever price they need to secure a property they want.
- Reports that a lack of anti-money laundering laws around property purchases make it easier for money laundering to take place.
The wall of Chinese money flowing into Australia looks set to increase even more.
Mr Halmarick has told Fairfax Media that the liberalisation of China's capital markets will inflate asset prices 'across the globe'. It's not just Australia where the Chinese are investing of course. A political war of words has broken out in New Zealand over Chinese property investment in Auckland, while the housing debate has also raised its head in Canada.
Interestingly, many Chinese property investors aren't worried about rental returns, or a property price crash, given the value the property represents. In fact, it has been reported many Chinese don't believe in renting out their property, more worried that renters will damage their property and force them to spend more, or make a loss when they sell.
That attitude might be changing, as they realise huge capital gains of the past are over, and to make money, they need to rent out their properties. Whatever the case, expect more foreign investment in our residential housing market – which also happens to be great news for REA Group Ltd (ASX: REA). REA opened up a website myfun.com advertising Australian homes to Chinese buyers in early 2014, with traffic doubling from its first quarter to the end of June 2014.
Foolish takeaway
The wave of money buying up Australian property doesn't mean that these buyers are stopping Australians, particularly first home buyers, from buying houses by artificially pushing up prices to ridiculous prices. Instead, it's likely to be a combination of a lack of supply in capital cities, low interest rates encouraging existing owners to move up, and investors jumping on the bandwagon.
I certainly wouldn't be buying a house in Sydney at the moment, but an investment in REA Group might be an even better bet.
