Craig Pontey’s Blog – The China (Asia) impact Beyond the Dollars

October 22, 2013 by Craig Pontey

In October 2012 the Federal Government published its White Paper ‘Australia in The Asian Century’- any reading of the paper leaves very little doubt that our economic and much of our cultural future is already and will continue to be linked to Asia. This is not a new idea and the reasons for the Australia/Asia connection are complex, but of late there has been a lot of attention paid to the real estate connection. It has been suggested that prices, in particular across some areas of Sydney are being driven in part by off-shore buyers. In particular those buyers coming from China.

While it is not possible to identify all off-shore buyers, it would appear that some recent high-end sales were made to off-shore buyers from China and there is also strong interest in new off-the-plan projects. However the current boost in activity in particular for more expensive properties also shows a more complex composition of buyers who are active in this sector.

While off-shore buyers are significant we still need to remember that they are only part of the Sydney high-end market profile. Also recently the supply of high-end properties offered for sale has increased which only goes to further magnify the trend.

Foreign Investment Will Remain a Factor

In March when the Federal Government relaxed its rules on property ownership the changes made it easier for foreign companies and temporary residents to invest in local real estate. Subsequently the then Treasurer announced a further relaxation of Australia’s foreign investment screening to ”help boost Australia’s growth”. The UK Government has also adopted a similar policy to attract more investment from China.

In addition the Communist Party has had an about-face allowing individuals to more easily invest overseas.

This has lead to the view that for some off-shore buyers Australian property is seen as a stable hedge against global economic ups and downs and alongside the potential devaluation of the Yuan, the recent drops in the value of the AUD$ make local buying even more attractive for off-shore buyers.

However despite all of these factors firm trends are not available because there is no measure being kept on the amount of investment by temporary residents in residential property.

According to the Foreign Investment Review Board’s annual report in the past financial year before the changes, foreign investment in Australian residential property increased by a third to $20.4 billion from the year before.

Lifestyle or Investment

I also think that the value of our local lifestyle and the quality of our environment are very important factors. As China’s more affluent middle-class grows, just like the well off British, looking to the sunny skies of Spain or Greece, it is reasonable to see the same trend emerge in China. Australia’s open space, beaches, parks and clean air are an equal drawcard along with an investment choice or access to private education. In fact the appeal of Bondi Beach might just be more appealing than we think!

A Lifestyle Opportunity

I think that we need to be aware of the unique nature of the Sydney market – its clear blue skies should not be underrated. The natural appeal of the city is a common feature of marketing literature that targets off-shore buyers from China.

However above all the value of access to local residential property should not be under estimated. Across Australia and not only Sydney is capable of attracting buyers who see a combination of lifestyle, new property, a stable government and value for money as a strong combination. Asian buyers also have the financial capacity to do so. In 2014 for the first time in history there will be more millionaires in Asia than there are in the USA. Already Asia is home to more billionaires and Beijing now ranks 6^th in a table of the where the world’s high net worth individuals live, Sydney ranks 24^th.

These facts alone shows that we only need to attract a small percentage of those wealthy buyers and we are more or less in the same time zone with air-travel booming.

Current Market Conditions Plus Emotion

The recent post-election economic outlook, the on-going share market gains, the lower dollar and low interest rate are all working to create an upside for the high-end residential market. There is also the fact that while home prices are on the rise in Sydney, across China prices have also increased at a faster pace making Sydney look good value.

Then as we see more off-shore buyers keen to buy I think they are motivated by a combination of emotional and economic factors as well as creating a legacy for their families. This also comes at a time when more properties are coming onto the market after a recent hiatus and with our engagement with Asia only set to increase the interest of buyers in our real estate is I think a natural progression and not a negative.

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