All right - DV your question was answered by Citigroup:
Chinese Buyers Sway Australia Property Market
Citigroup Economists Find Correlation Between Chinese Immigration, Real-Estate Prices
BY JAMES GLYNN AND ROSS KELLY
Conventional wisdom says a nation's house prices swing with its economy. In Australia, economists are paying increasing attention to another factor: Chinese immigration.
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.
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 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.
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.
DV, and let me quote your favorite economist, Saul Eslake:
"Economist Saul Eslake says he is not particularly troubled about the risks of a 'housing bubble' re-forming in Australia following Citi Research, which drew a similar conclusion.
The Citi Research report downplayed the risks of a housing bubble forming and forecast house prices to rise 3% between now and March next year before a “slight” 2% correction driven by the “powerful effect” of lower Chinese immigration, a weaker Chinese economy and a lower Australian dollar.
Eslake, chief economist at Bank of America Merrill Lynch (BAML) described the Citi Research as “really interesting, innovative and insightful” but remains circumspect about the impact of Chinese demand on Australian house prices.
“While I was aware of various pieces of anecdotal evidence linking Chinese demand to movements in house prices, this is the first time I've seen any rigorous attempt to quantify it,” Eslake tells Property Observer.
“In some ways it's hard to see a causal link between Chinese industrial production (IP) and Australian house prices; and lots of things in Australia are correlated with Chinese GDP growth these days (including Australian GDP growth and, inversely, the RBA cash rate), so there might be an element of 'double counting' here. But it's still a very interesting piece.
“More broadly, I've not been particularly troubled about the risks of a 'housing bubble' re-forming in Australia.”
Eslake says the present recovery in housing is weak by historical standards and is proportionately reliant on investors.
“I think households, particularly those who already have some debt, will continue to prioritize paying debt down over taking out new debt, which will inhibit non-FHBs, while FHBs are likely to remain apprehensive about their employment prospects and hence wary about entering the market.
“If there were signs of a 'bubble' developing because of low interest rates, the RBA in conjunction with APRA could use 'macro-prudential instruments' to reduce that risk.
These instruments could include mandating lower maximum loan-to-value ratios and shorter mortgage terms by requiring banks to hold more capital against mortgages.
Well, at least Eslake starting to change his tune and willing to contemplate the reality of debt and banking finance: "These instruments could include mandating lower maximum loan-to-value ratios and shorter mortgage terms by requiring banks to hold more capital against mortgages." It is a step in the right direction. Finally!
