Busted: Six myths about Chinese property buyers
May 29, 2016
Worth noting that Fairfax have in recent weeks shed Michael West and Malcolm Maiden from their ranks, so you would assume that the talent they are keeping on is pretty good. This piece is worth considering in terms of where Fairfax sees itself, what type of ‘journalism’ it sees worthy of pushing, and of the ‘skill sets’ – which Michael West was told he didn’t have – required.
Chinese buyers have taken centre stage on Australia’s property scene following an exponential surge in real estate investment from offshore markets.
China is by far the biggest foreign buyer of residential and commercial property, proposing $24.3 billion of spend in 2014-15 – more than triple the United States and six times the outlay from Singapore, the Foreign Investment Review Board annual reports shows.
This is a giant leap, considering the value of China’s proposed investment was behind the United States and Singapore in 2011-12 – at just $4.2 billion. Some experts tip India will be the next major player in Australian real estate.
So far, a factual start. Fits with the headline, and runs over the sudden magnitude of the Chinese buyer in our midst. For anyone wondering why there is a sudden reference to India in the final sentence of the opening stanza, that is the dog whistle. It is there to appeal to that part of the readership which will assume that the China buyer issue cannot be changed and that their focus should be on dealing with the rising issue – ie ‘go and head off those Indian buyers’
Property experts say some Australians priced out of the market after years of prices growth are using overseas-based Chinese buyers as scapegoats responsible for housing unaffordability.
The media overemphasis on “Chinese” buyers over other ethnic groups such as Indian, French or Canadian has fuelled public concern over whether these buyers are inching the Australian dream further out of reach.
The generalisation of the term Chinese buyers, to include anyone of Asian appearance or with an Asian surname, has placed local and international buyers in the same basket, and exaggerated the extent of Chinese interest.
Property experts reveal some of the biggest misconceptions:
Now we are getting into the swing of things! First up we have reference to ‘Property experts, and a casual look through the piece reveals we have three who are Investorist chief executive Jon Ellis, Esther Yong, director at Chinese portal ACProperty, and Biggin and Scott Glen Waverley director Ming Xu.
Now Ms Zhou may care to get someone explain to her that these three ‘experts’ are also in fact ‘vested interests’ insofar as all three are reliant on Chinese buyers turning up in Australia and buying lots of real estate. Using them in this piece would be in broadly the same league as writing a piece about China building military installations in the South China Sea and getting three experts from the Peoples Liberation Army (and maybe one from the CEO of their logistics supplier) about why that would be a good thing. They may be experts in the party line, but they may not be experts in considering all the issues relating to a specific question. This would accord with identifiable characteristics of Chinese media outlets which – unlike many Western media outlets which at least try to appear reflective of a journalistic tradition involving being considered, being diverse in sourcing facts and narrative points, and relating questions to the experiences of the readers or viewers – are primarily concerned with exhorting the views of the leadership around a narrative generally crafted by party ideologues, and crowding out competing interpretations or explanations from the view of the readership or viewership.
The interesting phenomena for the ambient reader is that there appears to be little by way of editorial capability at Fairfax which can twig to this. Also adding to the perception of little by way of editorial perusal of the piece is the regrettable ‘priced out of the market after years of prices growth’ which sees a duplicated use of ‘price’ and a grammatically incorrect form second time around.
That brings us to ‘are using overseas-based Chinese buyers as scapegoats’. Now the ambient reader will already have noted that Ms Zhou herself has already identified that there has been a massive increase in Chinese buyer numbers and the volumes they have purchased. This bring us to wonder if she thinks it unreasonable for ordinary Australian resident (and tax paying) buyers of Australian real estate to observe the same phenomena and consider it unrelated to the equally obvious sharp rise in prices for Australian real estate. Does that mean they are using Chinese buyers as ‘scapegoats’? Or is it possible that they may identify the Chinese buyer as a factor in the rising price phenomena she has identified – possibly along with other phenomena regularly identified at MacroBusiness, including local speculators, local taxation settings, landbanking, the local media and its reliance on real estate advertising [particularly Fairfax of which Ms Zhou is a part] – and ask questions about whether the rise in Australian real estate prices is a good thing, whether it fits within an economic narrative which is viable, whether there are questions to be asked about the causative factors, and (yes) whether Chinese buyers are a part of the dynamic which has caused the price rises and needs to be addressed if there is a case to be made that real estate prices have ceased to be sustainable in an economic narrative sense.
Next up comes ‘The generalisation of the term Chinese buyers, to include anyone of Asian appearance or with an Asian surname, has placed local and international buyers in the same basket, and exaggerated the extent of Chinese interest.’ Here we note the use ‘in the same basket’ (which is unfair to local ethnic Chinese buyers) and the use of the word ‘exaggerated’ (which adds to the tone of an error in the observation of Chinese buyers, rather than, for example, ‘magnified’). She also seemingly ignores the issue that there is no requirement for any buyer to prove their nationality bona fides in Australian real estate transactions, and that the extent to which foreign Chinese buyers could easily be distinguished from local ethnic Chinese buyers if there was.
Of course there is an element of the ridiculous added to spice things up with reference to French and Canadian buyers – has anyone ever seen or heard of a place being sold to a French or Canadian buyer?
- Overseas Chinese investors are pricing Australian first home buyers out of the market
Offshore Chinese investors and first home buyers generally don’t compete for the same properties.
In Melbourne, Chinese investors are mostly interested in new CBD apartments and suburbs with a strong Chinese community, such as Box Hill and Glen Waverley.
Most buyers of existing dwellings are migrants – or Australian Chinese. Offshore buyers have been snapping up new multimillion-dollar houses until FIRB rules were clarified at the end of last year.
It’s true first home buyers targeting some pockets will face competition. But young buyers are more likely to prefer established apartments, townhouses and semi-detached houses in inner-city pockets such as Prahran, Brunswick, St Kilda and Richmond.
Offshore buyers can buy new apartments or townhouses with FIRB approval, but those with specific temporary visas can buy one established property to live in, provided they sell it when it’s no longer their residence.
Investorist chief executive Jon Ellis says many Chinese investors are purchasing off-the-plan apartments in the CBD, while first-timers are buying established apartments in suburbs like Caulfield.
Based on their sales data, more than 70 per cent of all new apartment buyers are investors.
Mr Ellis says Chinese buyers are helping first home buyers because they’re increasing supply, and also stimulating construction activity which is keeping the economy afloat.
“Australians love a scapegoat. The First Home Buyer’s Grant was blamed for driving up property prices … baby boomers were blamed for pricing first home buyers out of the market; there’s always someone to blame,” he says.
“And at the moment, the Chinese are getting a bit of a ribbing.”
This time we start with ‘Offshore Chinese investors and first home buyers generally don’t compete for the same properties.’ A simple bald assertion backed by nothing whatsoever. No comparison of what first home buyers would buy and where, and how much they would pay with the Offshore Chinese investors. No mention of Australian buyers who aren’t first time buyers. Why wouldn’t first home buyers want CBD apartments or residences in Box Hill and Glen Waverley – and if they did then wouldn’t they be directly affected by the Chinese buyers? From there we come to the obvious phenomena of buyer displacement. The CBD, Box Hill and Glen Waverley markets don’t exist in silos, buyers pushed out of them go elsewhere and prices get pushed higher all round.
Then we get this pearler. ‘Most buyers of existing dwellings are migrants – or Australian Chinese. Offshore buyers have been snapping up new multimillion-dollar houses until FIRB rules were clarified at the end of last year.’ All buyers (not ‘most’) of existing housing are supposed to be Australian, and the FIRB rules have not changed in years, the only thing which was changed at the end of last year was that they are now going to be policed a little more (so it was claimed) – given that it has been amply demonstrated that they were not examined at all hitherto, that may not be much of a deterrent. The reference to multi-million dollar houses is to give the impression that it doesn’t affect ordinary (non multi-millionaire) people. But there is absolutely no reference (other than the bald assertion in the first sentence) as to why ordinary Chinese (or more ordinary Chinese than those who would buy multi-million dollar abodes) would hold off on buying ordinary Australian real estate in the same way if they too weren’t clear on the FIRB rules.
From there we move to temporary resident visa holders and their entitlement to buy an abode while in Australia, but no mention (because there is nothing to mention) about what mechanism to ensure that any abode they buy is sold when their temporary visa expires. Then up pops Mr Ellis supposedly positing a Chinese buyer to the CBD and first timers to Caulfield train of thought (one wonders how many first timers would actually buy there) without a shred of data apart from the suggestion that ‘70 per cent of all new apartment buyers are investors’ to muddy the waters on whether they are Chinese investors or not, or whether than sentence is there for any reason whatsoever apart from padding out a paragraph with something which looks like some data.
Finally we have Mr Ellis back to (thankfully) see the phenomena in broader terms, correctly identifying that Chinese buyers, along with First Home owners grants, and babyboomers are part of the rising real estate price issue, after noting that Chinese investors help stimulate construction (which they certainly do) and add to supply (which is more debatable if most/many of the new abodes never come on the market for rental).
- Chinese buyers with endless financial means are bringing suitcases full of money
Esther Yong, director at Chinese portal ACProperty, says the majority of average buyers are looking at properties priced between $500,000 to $800,000.
“A lot of people think they just walk up with suitcases of money, but that doesn’t usually happen,” she says.
“Generally, there’s more news about people buying $5 million, $10 million and $20 million houses than just someone buying a $500,000 house … so most people think Chinese buyers are really rich.”
Ms Yong says Chinese families usually plan and save for a property as a top priority, sometimes even over marriage.
“[Property] is the first thing that families talk about when they sit down together,” she says.
“It is something that’s embedded in the [Chinese] culture; first things first, own a property.”
Chinese buyers are usually very cautious with their money and don’t like to overstretch financially.
Mr Ellis says the majority of Chinese buyers usually make their investment decisions before visiting the property in Australia.
“They certainly don’t bring any suitcases of cash because they’d be stopped at the Australia customs,” he says.
There has also been a Chinese government crackdown on illegal offshore money transfers.
Next batsman at the crease is Esther suggesting most Chinese buyers are after something in the 500-800K range. Obviously the ‘journalist’ (Ms Zhou) never asked herself the question of what most Australian (non-Chinese) buyers might be after because many would have thought they would be after broadly the same thing and come to the idea that the foreign Chinese buyer and ordinary Australian buyer were, in fact, after something so similar as to see them in some form of competition for supply, which would be a contributory factor in driving prices higher.
From there Esther seems to think stories of Chinese rocking up with suitcases full of cash are overdone. I dare say they are, but having seen the videos on youtube, having heard real estate agents, auction participants, and buyers agents describe the phenomena, could they be completely discounted? She leads to (but of course doesn’t go as far) the question of who identifies how much money comes into the country, who identifies (or requires identification) the veracity of the money – as in who can say it is not the proceeds of corruption, given that we have every reliable authority on China suggesting it is one of the most corrupt countries on earth, and knowing that the sums of money Esther refers to (500-800K) are many, many times the average earnings in China. China also has laws preventing the capital flight of more than 50K USD per month. Is it worth asking of those who have already funded real estate purchases in Australia to state clearly and unambiguously that they are not the beneficiaries of corruption (and could we possibly ask for a reconciliation of Chinese taxation receipts with the income available to purchase Australian real estate) – and then follows up with a plausible narrative pointing to the desirability of real estate acquisition in Chinese culture. Regrettably she seems to think Australian Customs would necessarily prevent suitcases of cash coming into the country, but she does rightly note that the Chinese government has cracked down on capital exodus – not crackdown as in changing the laws, but crackdown as in enforcing them – which underlines questions about the legal status of real estate purchases made by non-resident offshore Chinese buyers made prior to the ‘crackdown’. But ultimately there have been Billions of dollars of real estate transactions in Australia funded from China. Would anyone writing this article, or anyone quoted in it really want to suggest that Billions of dollars of anything funded from China was corruption free? And how much corruption has been identified in Australian real estate by Australian regulatory authorities, despite every major crime investigatory organisation on earth stating quite clearly that the proceeds of corruption is being laundered through Australian real estate?
- Chinese buyers tend to overpay on properties
Some vendors believe they can get top dollar for their property if they sell their home to a cashed-up Chinese buyer, but that’s not always the case.
Chinese buyers like to negotiate, and some agents would even say they’re savvy buyers.
Sure, they’ll pay a premium if they think it’s worth it, or it has unique features. But so would local buyers.
Ms Yong says many Chinese buyers have family and friends living in Australia, and would help them with their research.
Biggin and Scott Glen Waverley director Ming Xu says offshore buyers are rational, and are sensitive to exchange rates, immigration policy and how safe a country feels.
Esther puts the piece on firmer ground when refuting suggestions Chinese like to pay over the odds for real estate, and quite rightly identifies that they are astute when it comes to money. She doesn’t go near the idea that if the priority of the offshore Chinese investor is only to get the money out of China – and here we need to go back to questions about the veracity of the money and how it came to be in Australia, and how this question isn’t looked at by anyone in the money transfer process, despite the word ‘Trillions’ being used to describe the volume of the corrupt capital flight from China – then maybe the astuteness of the offshore Chinese investor has a priority of getting the money out of China over getting value for money in the destination jurisdiction outside China. Biggin and Scott Glen Waverley director Ming Xu comes in at the end of the paragraph to lend some bien-etre with a gentle allusion to that phenomena using the code words ‘how safe a country feels’ as part of the buying consideration process.
- Chinese buyers aren’t concerned about dwelling size
Investorist’s China 2016 International Property Outlook, which surveyed 150 real estate agencies selling off-the plan properties across China, found Chinese buyers are not looking for micro apartments.
Mr Ellis says not a single agency said their clients would favour an apartment under 50 square metres.
However, an offshore investor venturing into the Australian market may start off with a smaller property because it’s more affordable.
“First-time investors might start with a property less than $500,000 … but once they’ve bought one, they then realise they want to invest in higher-value properties and they start [investing] in more blue-chip stock between $600,000 and $1 million,” he says.
“The agencies now are directing their clients to buy bigger, more liveable properties.”
Those in the market for more nebulous and specious claims about offshore Chinese buyers, thrown incoherently into a ‘news’ article need go no further than ‘Investorist’s China 2016 International Property Outlook, which surveyed 150 real estate agencies selling off-the plan properties across China’ (but has no indication about whether it included information about Chinese buying real estate in Australia). Mr Ellis obligingly brings in the suggestion that Chinese investors in Australia may be looking at real estate worth less than 500K, but Ms Zhou (the ‘journalist’ or ‘reporter’) still hasn’t twigged to the idea that this may in fact bring them into the realm of real estate which would be of prime interest to most/many Australian domestic buyers (and from there into an element of competition). Same applies to the 600-1 million range posited next up.
- Chinese investors leave apartments and houses empty because they’re not chasing rental return.
Apartment buyers usually rent the property out, Ms Yong says, but Chinese buyers intending to migrate to Australia may keep a big house empty until they move so that the property’s still new.
She says many of their users would jump on the rental section of their website to research potential rental return before they buy in an area.
Mr Ellis says yields is an important consideration for Chinese buyers, and they’re especially looking for rental guarantees.
The Investorist survey found investment is the number one motivating factor for Chinese buyers, followed by education, migration and lifestyle.
“We drilled into investment further, and asked them what sort of yields they wanted, and they’re happy with 5 per cent,” Mr Ellis says.
“They’re not wanting astronomical yields and they’re doing it for investment.”
The strike is now rotated back to Esther to rebut the idea that any significant number of Chinese buyers of Australian real estate are leaving their purchases empty (and are therefore not investors), with the idea that some want to keep the place fresh until they can move out (without looking at the idea that if they are buying to invest then that is the basis on which they are allowed to buy real estate here – if non resident or non Australian – and that if they are buying on a putative ‘will become an Australian’ basis then they possibly shouldn’t be buying as investors, and maybe should start facing questions about when, and on what basis will they become Australians). Neither the journalist or the person quoted posit any plausible suggestion as to why so many new apartments in the centre of Melbourne sit there night after night without any indication they are ever used at all (and thus contribute sweet FA to supply or affordability in the local market and tend to exist more as ‘golden bricks’ which the new London Mayor has observed of foreign investors in real estate there).
Esther notes again that Chinese are often astute in their investment decisions. This isn’t supported by the Journalist [Ms Zhou] harking back to the ‘Investorist survey’ which we have already identified covers ‘150 real estate agencies selling off-the plan properties across China’ and seemingly points to the possibility that Ms Zhou is incapable of distinguishing between China and Australia in the context of writing an article ostensibly about Chinese investors in Australia (and exploding the myths revolving around these). Esther suggests that they have ‘drilled further’ into their Chinese investors to discern that these are ‘happy with 5 per cent’ without either she or Ms Zhou [The ‘Journalist’] ever going within a bulls roar on how this drilling may occur, the methodological basis for doing so or even if the same drilling might reveal any particular awareness of their rights and responsibilities vis Australian law and the real estate acquisition and anti money laundering processes. That’s all topped off with another bald statement to the effect that “They’re not wanting astronomical yields and they’re doing it for investment” without distinguishing it from any desire to simply get their money somewhere safe outside China.
- Most Chinese buyers shun properties with a street number 4, and the right number play a big part in their decision making
It’s true that the number eight is linked to good fortune because its pronunciation ‘ba’ in Mandarin, and ‘baat’ in Cantonese, sounds similar to the word for prosperity.
And sure, some buyers might even pay a bit more at auction just to land on $888,888.
Likewise, the number 4 is seen as unlucky because it sounds like the word die.
But Mr Xu says the sale price will more likely depend on the property, particularly for younger Chinese buyers.
Finally we get a bit of slap and tickle at the end of the piece for numerology buffs and the superstitious, with a veneer of common sense for all buyers enunciated by Mr Xu at the end.
The really sad thing is that Fairfax is using the media playbook, processes and approaches, from a totalitarian state to flog real estate in Australia without looking at whether it is in contravention of Australian laws or even Australian interests. From there tragedy unfolds the moment you think they are ditching real journalists who have proven themselves over a number of years to provide this bullshit……..
………..Finally – and this will hopefully (although I know it wont) head off the invariable claims of racism which are likely to be directed towards me for raising the laughable quality of the press spruiking done in the Fairfax media directed towards supporting offshore Chinese buyers of Australian Real Estate – I would just like to close by stating that I dont really care how many Chinese people migrate to Australia, and I dont have a general problem with the idea of large scale migration from China. What I do have a problem with is the idea that significant numbers of Chinese (or any other nation) would buy so much real estate in Australia that it would (in conjunction with other factors in the market) impact on the local market to the point where it begins to price Australians out of access to owning a home, and where such migration place such strains on existing societal infrastructure to the extent that local services are diminished for users because of the increased demand – particularly where the economic case for such levels of migration isnt being made in that it neither makes us more competitive, it provides no badly needed employee types, and doesnt stimulate local small business investment; it just adds to the number of bodies here soaking up whatever they can from whatever productive ventures we do (which at the moment are about mining, using small numbers of people).
My other major issue with the large scale purchase of Australian real estate by Chinese nationals (and this observation would apply to any other nation) is that the funds used to purchase real estate (a social good) in Australia have a probity and veracity which is equal to the PAYG taxpayers who need to take out mortgages in Australia, and that it is free from all claims of corruption and overtly examined with respect to any such claim well before it is permitted to buy Australian real estate. I also believe that any large scale migration into Australia should be part of a clearly articulated economic policy, not simply to sustain demand with more people providing demand. Without that economic policy justifying it, without the probity of the money supporting it, without the planning by all levels of government to facilitate it, I dont not believe that continued large scale migration into Australia makes much sense at all.
The post above, however is not about Chinese migration. It is about the utter spuriousness of media commentary designed to support real estate prices.