Chinese buyers and developers are still throwing their weight around.
The anecdotal story doing the rounds over the last few years is that Chinese buyers, many with the old “suitcases full of cash” have been buying up premium dwellings in our capital cities, and off-the-plan apartments.
All this buying was partly responsible for the big run-up in prices we’ve seen in recent years.
However, thanks to tighter government regulations, both here and in China, Chinese buying has slowed to a dribble.
The data is patchy here, so we’re relying on the people’s read of the ‘vibe’ in the market.
However, while there might be less activity at the front end of the market, Chinese developers are still buying up big at the back end, and still pushing prices higher.
The AFR has the story:
Chinese developers have taken a virtual stranglehold on the future supply of new housing in Melbourne’s outer suburbs after acquiring more than two-thirds of all big greenfield land parcels offered for sale in the past 18 months, in deals worth about $2 billion.
This surge of foreign capital has pushed broadacre land values above $1 million a hectare and contributed – along with planning and infrastructure delivery bottlenecks – to the cost of a standard 400 square metre lot rising 30 per cent in a year to a median of $323,000.
Figures from real estate group RPM show greenfield sales to foreign purchasers reached $1.2 billion last year, accounting for 67 per cent for all land sales above $10 million, up from 15 per cent in 2014.
This trend has continued in the first five months of 2018 with RPM tracking $750 million of acquisitions by overseas purchasers…
I have a few thoughts about this.
First, unless I’m wrong, these purchases would all have to have gone through the Foreign Investment Review Board. The FIRB vets major investment in Australia to make sure it aligns with Australia’s interests.
So, is this not ringing any alarm bells? At the same time that we’re worried about Chinese spying in Australia and their intentions in the South China Sea, we’re happy to sell two-thirds of our developable land to Chinese firms (which one way or another, all come back to the Chinese state). Am I missing something here?
Why are we worried about what their military is doing if we’re just going to sell them all the land anyway?
Now, maybe I am jumping at shadows, but I still would of thought that this kind of concentration of land, our land, in any nation’s hands, is a gamble that we should at least be talking about.
Second, when did 400sqm become ‘standard’? It says a lot about how the property market has evolved, and the kind of pressures that are still in place, that 400sqm on the far-flung city outskirts is ‘standard’.
Third, this will feed through into prices. A 30% increase in land prices is pretty massive, and it will feed directly through into new house prices.
Since new and existing homes are part of the same market, inflation in one goes hand in hand with inflation in the other.
Prices in the entire market will rise. It has to happen. The surge starts in land. It’s coming through the pipeline now.
This is a long-run dynamic. The world is awash with easy money. If it wasn’t the Chinese, it’d be somebody else.
Across the centuries, money flocks to land like flies to a sausage roll.
So I still think there’s a conversation we need to have here. But there’s a dynamic here too that I’m backing all the way to the bank.