The impact of Chinese investment on an array of different markets around the world has caught the headlines of late with many suggesting the “flood” of Chinese investment is pushing markets away from the general public. One area which has received significant focus over the last few years is the Australian real estate sector and the countries blossoming relationship with China. However, while on the surface many are blaming Chinese investment for the “Australian real estate bubble” is this fair?
Before we begin to look at the details surrounding Chinese investment in the Australian real estate market it is worth noting that the Australian Foreign Investment Review Board (FIRB) is actually in charge of approving all foreign investment across Australia. So, what do the figures look like with regards to Australian real estate?
Is $16.6 billion a large investment in Australian real estate?
Between the periods of 2009/10 and 2012/13 the FIRB approved $16.6 billion in Chinese real estate investment across Australia. A figure of $16.6 billion is no small change but in reality it is less than 10% of foreign investment in the Australian real estate sector over this period. There will have been additional investment beyond these official figures but the reality is that Chinese investment in the Australian real estate market is less than the US and just slightly more than the UK. So, why is China accused of squeezing the Australian real estate market higher?
Quote from PropertyForum.com: “What is your view about the Australian real estate sector? Is it time to cash in your chips in the main areas and look elsewhere? Or does the economy justify current Australian real estate prices?”
Some elements which are often overlooked include the fact that while $16.6 billion of investment was approved by FIRB not all of these investments would have gone ahead. Indeed this figure is also gross and does not take into account any sales by Chinese real estate investors over that period.
Does overseas investment help the Australian property market?
If we ask ourselves a simple question, if there is demand for property/real estate in Australia does this encourage greater investment from housebuilders and indeed lead to more properties being made available? The simple answer is yes.
While it would be foolish to suggest there is not a growing and blossoming relationship between Australia and China (much of this brought on by the natural resources industry) it is nowhere near as influential as some would have you believe. We therefore need to take a close look at overall overseas investment in Australia as well as domestic investment where pension funds are particularly active in the real estate market.
Are experts looking for a reason to talk down Australian real estate?
The reality is that many experts have been attempting to talk down the Australian economy, and as a consequence the Australian real estate market, since the country significantly outperformed the worldwide economy after the 2008 recession. Indeed Australia was the only major Western economy to avoid a recession during a period when many European economies were in freefall.
It will be interesting to see the performance of Australian real estate in the short to medium term and whether indeed the supposed “over influence” of Chinese and other overseas investors will bring the market tumbling down as and when they take a profit. Unlikely but we will see!