China’s Latest Corruption Target: Overseas Real Estate

Tell it to John McGrath

Chinese Buy Sydney Homes at Unprecedented Rate, McGrath Says

As much as 80 percent of homes in parts of Sydney are being sold to Chinese buyers, John McGrath, chief executive officer of the company that recorded A$7 billion ($6.5 billion) of property sales in the year to June 30, said in an interview in Sydney yesterday. Record-low interest rates and the biggest influx of investors in almost a decade are also fueling prices.

Hari, govt stats are in the main years out of date and their accuracy is questionable at the best of times. In terms of RE data and who's buy what there are no really definitive numbers only estimates. Forget FIRB data… it's rubbish. They're an admin org not a policing org. The Chinese have more back channels to invest/buy RE than you can poke a stick at.

RE agencies and large property developers are and have developed significant marketing and sales strategies around asian investors. The big guys maintain sales offices overseas for this purpose.

McGrath's comments give you a peak at the real picture. He should know.

The problem with foriegn investment especially one with no real controls is that it will cook local markets eventually. Fed and State govt's couldn't care less and won't do anything tangible to stifle foreign investment. It helps fill the very depleted coffers. They will pay lip service but do nothing.

Latest available FIRB report;

Foreign Investment Review Board Annual Report 2011-2012

Main points

•     In 2011‑12, 10,703 proposals received foreign investment approval, compared with 10,293 in 2010‑11 (the sectoral breakdown below excludes 81 reorganisations).

1.         The real estate sector recorded 10,118 approvals, compared with 9,771 approvals in 2010‑11.
2.         Other sectors also had an increase in approvals with 504 approvals in 2011‑12, compared with 448 approvals in 2010‑11.

•     Approvals in 2011‑12 were given for $170.7 billion of proposed investment. This represented a 3.4 per cent decrease on the $176.7 billion in proposed investment approved in 2010-11.

1.         In real estate, approved proposed investment was $59.1 billion in 2011‑12, compared with $41.5 billion in 2010‑11. The increase is attributable to proposed investment in commercial real estate, which increased from $20.6 billion in 2010‑11 to $39.4 billion in 2011‑12. Proposed investment in residential real estate decreased slightly, from $20.9 billion in 2010‑11 to $19.7 billion in 2011‑12.
2.         In other sectors, approved proposed investment in 2011‑12 was $111.6 billion, a decrease of 17.5 per cent compared with the $135.2 billion approved in 2010‑11.

•     In 2011‑12, 13 proposals were rejected (compared with 43 in 2010‑11). All of these related to real estate purchases.
•     The real estate sector was the largest destination by value, with approvals in 2011‑12 of $59.1 billion. In 2011‑12, the other major sectors were: mineral exploration and development, with approved proposed investment of $51.7 billion; and manufacturing, with approved proposed investment of $29.5 billion.
•     The United States ($36.6 billion) was again the largest source country for approved proposed investment in 2011‑12. Other major source countries of approved proposed investment in 2011‑12 were the United Kingdom ($20.3 billion), China ($16.2 billion), Japan ($13.9 billion) and Canada ($8.9 billion).
•     On 24 October 2012, the Deputy Prime Minister and Treasurer announced the appointment of Mr Michael D’Ascenzo AO to the Board. His five-year term will commence from 2 January 2013.

Anecdotal reports suggest that RE purchases out of China are increasing not only in AU but globally. The speculation is that as China's financial system exhibits increasing signs of instability those who are able to and have channels to shift capital across borders are doing so in increasing numbers. Chinese leaders are looking to minimise this type of capital outflow but their reach has it's limitations and isn't as easy as simply giving executive orders. Corruption is endemic and considerably more difficult to control than most westerners understand.

To get an idea how Chinese money is flowing into RE markets you need to also consider other international markets. A couple of recent examples that are generating problems for those markets.

Vancouver’s Skyrocketing Housing Prices: Are Mainland Chinese Investors To Blame?

• Citing data from Landcor Data Corp., the South China Morning Post reported that in 2010, among purchases of luxury homes and properties in Vancouver’s West Side district, as well as the satellite city of Richmond, an overwhelming majority (74 percent) involved buyers with mainland Chinese surnames.

Top 10 U.S. cities for Chinese homebuyers

• Where are they buying?

  New York and Los Angeles top the list of U.S. cities they are most interested in, according to Juwai.com, a website where Chinese buyers browse global real estate listings.

  More surprisingly, Philadelphia and Detroit come in at No. 3 and No. 4.

China's Colonization Of London Hits Ludicrous Speed, And Now: It's Detroit's Turn

• "We expect the pool of investors from China targeting London to grow significantly in the coming years. They will consider everything from urban regeneration sites through to trophy assets,"

Chinese Buyers Sway Australia Property Market

Citigroup Economists Find Correlation Between Chinese Immigration, Real-Estate Prices

• 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 them on a bus and taking them around and then trying to find out their price ranges," he said.

Chinese new wave rocks property market

• Mellor estimates 17,000 apartments will be built in inner Melbourne during the next three years – with many of the projects undertaken by Asian developers.

  "It's an accident waiting to happen," says Mellor of the inner-Melbourne apartment market.

I'm not a big fan of MSM reports but where there's smoke there's fire as they say.

Hari you're academic ability belies your lack of understanding in RE markets and economics in general

Bad. If you don't understand how CB printing pushes capiatal flows across borders distorting markets then you need to revisit economics 101.