David Penberthy: The Chinese are helping kill the Australian dream

THE ease with which Chinese nationals can buy up Australian property is not doing young Australians any favours, writes David Penberthy.

A LOT of prejudicial nonsense is spoken about the trade relationship between Australia and China, with free trade arrangements that pass unnoticed with other countries sparking alarm when it comes to our business dealings with the Chinese.

The best way to allay fears that we are selling out our nation is to reflect soberly on the spectacular imbalance in our trade relationship with China. It is tilted heavily in our favour, with the Chinese buying $21.8 billion more in goods and services from us than we buy from them.

That surplus is replicated in the trade relationship with Hong Kong, which is still listed separately from China despite being under its dominion, with Australia $7.2 billion ahead. That’s almost 30 billion bucks worth of Australian wine, medical goods, university educations, fruit, and vegies.

While all this is an obvious upside, there is one feature of the openness between China and Australia which, I would argue, is making life much, much harder for average Australians.

And that is the ease with which Chinese nationals can buy up Australian property, and the fact that they are now doing so in such staggering numbers.

With so many young Australian couples now priced out of the market, it is worth having a frank discussion about the wisdom which underpins the (largely) unfettered purchase of Australian homes by foreign citizens, almost all of whom happen to be Chinese.

Young Australians are being locked out of the Great Australian Dream of home ownership. (Pic: iStock)

The consensus among property developers and real estate agents is that foreign investment is essential to underpin the commercial viability of medium and large scale apartment complexes and housing estates. Non-Australian citizens are only allowed to buy new properties or off-the-plan properties.

The argument goes that if not for those guaranteed pre-sales to foreign buyers — especially the Chinese who are mad keen on buying off the plan — the economics of these big apartment and housing project simply wouldn’t stack up.

It is debatable whether this is true. It might mean that the developers would make a bit less money, because in the absence of foreign buyers, demand for housing would be limited to the domestic market. This would reduce the number of potential buyers, with fewer people vying to buy the same apartments or homes, leading, you would think, to a reduction in prices.

To which millions of Aussies would say, hallelujah. In Australia right now, a reduction in prices would be music to the ears of any young would-be homebuyer who is still mooching around at Mum and Dad’s or contemplating selling a kidney to pay their stamp duty.

Equally, I am not sure whether it would necessarily trouble every homeowner to learn that the value of their digs had come down a tad. I bought my place four years ago, and according to the bank it has gone up by $100,000-$150,000 since then, but the increase means nothing to me in a material sense as I had no intention of selling anyway. It will grow in value over time anyway, as houses do.

Whatever perverse thrill you get from an on-paper increase in your home value should be erased, in my view, by the bigger social problem of a whole generation being locked out of the Australian Dream.

I am not singling Chinese buyers out for gratuitous reasons. I am singling them out because, for the first time, there is hard data showing the extraordinary impact the overwhelmingly Chinese foreign investors have had on property prices here.

It’s time we had some frank discussion about how to fix our housing woes. (Pic: Supplied)

The global investment bank Credit Suisse lodged a freedom of information request with the NSW and Victorian governments seeking details about foreign investment on the Australian real estate market.

The Credit Suisse report, released last week, found that one in every four new homes in NSW was being bought by a non-citizen, and that of those, 80 per cent were from China. This means that every fifth new home in NSW over the past year has been bought by someone who lives in Shanghai or Beijing.

In Victoria, 16 per cent of new housing is being bought by non-Australians, with Melbourne fast catching Sydney off the back of its most-liveable city status.

The total value of these foreign-bought houses and apartments in both states was a staggering $39 billion.

“Chinese buyers continue to settle on their purchases despite the numerous impediments,” the report says.

So if Australian real estate is so expensive, how can Chinese people afford to buy it? The Credit Suisse report explains: “It is hard for many Australians to think of property as a cheap asset, but from a Chinese investor’s perspective, there could be plenty of value in Aussie housing.”

“The median price for a two-bedroom apartment in Shanghai is around $900k, which is 25 per cent more than the median apartment price in Sydney. Also, the gross rental yield in Shanghai is a paltry 1.5 per cent and is less than half the gross rental yield for the equivalent property in Sydney. Yes, our property is expensive when we compare it to our own history, but it is cheap when compared to Chinese property.”

In addition, while the average Chinese person earns next to nothing, the country’s population is so enormous that its tiny percentage of millionaires equates in human terms to more than 1.3 million actual people.

As I said, none of this is an attempt to single out the people of China as the sole culprits in the punishing cost of Aussie property.

But it is worth asking some questions around the manner in which we decide on our policy settings, and whether these settings are making life too hard for our own people.

I am not sure if the real estate industry is that interested in this conversation, built as it is around the payment of commissions, meaning that its livelihood is best secured by the ever-increasing value of property.

At barbecues and at front bars it’s something the rest of Australia is really, really interested in, especially when we have all heard the stories from friends about the absent, mystery bidder who trumped them at the auction. These stories do not appear to be apocryphal after all.