The Government has found a way to get Chinese buyers legally into the existing market.
In between all the election hoo-ha and the Brexit vote, there’s been some big news for Australian property.
And mostly its gone under the radar.
I’m talking about changes to Guardian Visa rules.
Malcolm Turnbull announced these changes in China in April, but by and large the Aussie media let it go through to the keeper. But the implications could be significant.
Under the new rules, from July 1, students aged six and above would be able to apply for student visas regardless of their country of citizenship – and their guardians can also apply for Guardian visas (subclass 580).
The key thing here is that this now applies to Chinese nationals.
At the moment, the system assesses applications based on immigration risk and most Chinese students are ranked at level three, the highest risk, requiring the most evidence to support applications.
But these changes will make it much easier for Chinese students and parents to come to Australia.
Most importantly, they then become temporary residents, which means they can buy existing property.
Chinese buyers have been big players in capital city markets in recent years, and it’s become something of a hot topic. Foreign nationals aren’t legally allowed to buy existing property, but there was a perception that illegal purchases were rampant.
So in the second half of last year, the government introduced a new regime to make sure that rules were being followed.
That seemed to cool demand a little (though it was difficult to disentangle the effect from tighter capital controls in China).
This move however, should go a fair way to offsetting the impact of a stricter regime. It now provides a new way for Chinese nationals (and a number of other nationalities, but I’ll focus on China because the data says that’s where the bulk of interest is coming from) to legally purchase existing property.
To put it bluntly, this is kind of huge.
Property prices are already driven by the attractiveness of local schools. This extra demand being brought in from China will push good school zone house prices even higher.
But we’ve seen that Chinese buyers are willing to consider all areas across Sydney, Melbourne and to a lesser extent Brisbane and Perth. So this will be a solid and broad stimulus for the housing market.
And already things are hotting up.
Dave Platter, from the leading Chinese international-property portal Juwai.com said there has been a nearly 20 per cent jump in inquiries for properties in Australia since Mr Turnbull’s announcement.
“We’re already seeing inquiries about these new visas from Chinese families who want to have their children study here,” he said.
Oddly enough, Platter doesn’t reckon this will push up house prices.
“In school catchment areas, where there’s potential for new development, Chinese interest actually increases the supply of housing by making it possible for developers to build new buildings, and that creates new supply, which can help keep prices down.”
“The government has done studies on this, and they’ve found that Chinese buyers actually keep prices down by encouraging new supply.”
I don’t know what he’s talking about. I keep my finger on the pulse and I’ve never heard about a government study that says Chinese buyers keep prices down.
As I’ve written about before, Chinese purchases of new property tend to be in high-rise towers, focused on one and two bedrooms. There’s not a lot of substitutability between these apartments and suburban family homes.
So I just don’t buy it. This will push prices up, no two ways about it.
And how much?
Well that really depends on how many Guardian visas the government is willing to grant. What’s the answer to that?
I don’t know, but it could be: “Whatever it takes to keep house prices elevated.” Perhaps the government is giving themselves a tool to support house prices in case house price falls somehow get a run on..?
Sorry. All this electioneering must be making my cynical.
If what we hear about the Chinese buyers is true – that they’re looking to get money into Australian assets any way they can – then there’s a potentially unlimited pool of demand.
The government might be looking for a way to sustainably tap it – make sure there’s enough demand when local conditions cool, without flooding the market too much.
No Prime Minister wants to have a house price collapse on their watch. Their party would be wearing that for a generation.
Perhaps not. Maybe the government just genuinely cares about keeping kids and parents together. But that wouldn’t be my first thought.
But whatever the case, a huge pool of demand has just been tapped. It’s significant.
What do you of the new rules?