Conventional wisdom says a nation's house prices swing with its economy. In Australia, economists are paying increasing attention to another factor: Chinese immigration. Massive influx projected for next elected government to fill budget hole believe it or not.
Wealthy Chinese are now among the biggest buyers of real estate in Australia, picking up properties ranging from modest suburban homes to waterfront mansions with views across Sydney Harbour.
In one of the biggest purchases this year, a Chinese buyer spent more than 50 million Australian dollars (US$46 million) for Altona, a home in the Sydney suburb of Point Piper that's frequently been rented out to celebrities, including U2 frontman Bono. Weeks earlier, another Point Piper mansion-dubbed the Bang & Olufsen House because it resembles a hi-fi system-sold to a Chinese buyer for more than A$30 million.
Now the influx of Chinese money is starting to skew Australia's real-estate data, which is closely watched by policy makers including the nation's central bankers. Economists at Citigroup Inc., retooling the computer model that churns out the bank's predictions for house prices, found a previously unknown connection: Shifts in levels of Chinese migration were consistently echoed, three years later, by changes in property prices. So strong was the relationship that Citigroup has now worked it into its equations.
'The story of the rich Chinese businessman snapping up a A$40 million mansion in Point Piper is a trend that isn't likely to end anytime soon,' said Joshua Williamson, a Sydney-based economist at Citigroup.
The bank said the reason for the correlation isn't clear. It didn't find a similar relationship between total immigration and property prices.
'It could be that Chinese immigrants have the income capacity and desire to buy property, more so than other nationalities,' said Paul Brennan, chief economist of Citigroup's Australian operations.
Australia has long courted China's affluent. The first visa in a program that lets foreigners settle in Australia for up to four years in exchange for investing A$5 million went to a Chinese toy maker. Thanks to the SIV 888 visa which cost $5mil AUD a pop, Australia will open its properties floodgate once again to the wealthy chinese in coming quarters. Historical Low rates + Chinese migration = another record housing price coming.
In the fiscal year ending June 2011, more immigrants arrived in Australia from China than from any other country. Although immigration from China fell 9% the next year, to rank behind arrivals from New Zealand and India, analysts and realtors point to several factors that should keep buying interest in Australian property strong.
For one, curbs on property speculation in China are forcing investors there to look internationally. Australia's schools are also a drawing card. International education is big business-generating about A$14.5 billion in export revenue last year to rank behind only iron ore, coal and gold-and a survey this month by HSBC this month showed growing interest in property purchases among parents of Chinese children studying in Australia.
The falling Australian dollar-down 10% against the U.S. dollar over the past two months-is making property more affordable for overseas investors, says Richard Simeon, a real estate agent in the Sydney waterfront suburb of Mosman, which has panoramic views of Sydney Harbour.
Mr. Simeon, who has sold close to A$30 million worth of homes to Chinese buyers in the past few months alone, has to work in bulk to meet demand from wealthy clients. 'I'm putting on a bus and taking them around and then trying to find out their price ranges,' he said.
To be sure, Australia restricts the type of property that can be owned by foreigners, in a bid to limit the potential for a real-estate bubble. Nonresidents can't buy an existing home, and temporary residents who buy one must sell it when they leave. But anyone can buy and keep a home under construction or buy a vacant lot and build a home.
The restrictions don't seem to be deterring investors. Simon Henry, co-founder of juwai.com, a China-based website connecting wealthy Chinese with real-estate sellers internationally, says Australia lags behind only the U.S. in investor interest in new homes.
China accounted for A$4.19 billion, or 7%, of the A$58.40 billion of foreign investment on commercial and residential real estate in Australia in the year ended June 30, up slightly from a year earlier, according to Australia's Foreign Investment Review Board. That ranked it third behind the U.S. and Singapore. Data measuring investment by Australian citizens of Chinese birth isn't available.
While early real-estate deals overseas involved wealthy elites, this is starting to shift as middle-class incomes rise in China. 'Now there is a bigger bracket,' Mr. Henry said.
After reading the chinese story above, are you convince that Australia is heading for another big wave of property price boom??
