China’s corruption crackdown could deliver a blow to Australia’s property market

The Chinese government's efforts to stamp out corruption could result in regulators turning off the real estate tap, with detrimental consequences for the Australian housing market.

Chinese and other Asian investors have been a major force in driving the price of dwellings in Sydney and Melbourne to high levels.

If the Chinese were to suddenly curtail their buying, then the Australian dwelling market would almost certainly suffer a considerable setback.

That’s why the reports on China television relayed to Australia via Business Spectator’s Peter Cai stating that Bank of China was allegedly laundering money and not complying with the country’s foreign exchange laws, and that much of that money was ending up in Australia, are potentially dynamite for this country (The dirty money of China’s filthy rich, July 11).

Now I hasten to add two qualifications: First, the Bank of China denies the allegations (Bank of China denies money-laundering allegations, July 10) and in any event, the allegations were directed at the business investment visa market rather than dwelling purchases. But you would expect a denial, and the various Chinese investment avenues in Australia cross over. Residential real estate is the main market for Chinese money, no matter its original purpose.

Longer term, China wants to stimulate overseas investment, but it also wants to stamp out corruption. We know that some of the money that finds its way into the Australian real estate market is of dubious origins.

While Trade Minister Andrew Robb is adamant that relations with China have not been damaged by the red carpet we put out for the Japanese Prime Minister, Australia has been hit with unfavourable Chinese headlines on two fronts.

And now there is a third area of unfavourable headlines: Probably our most prominent politician, Clive Palmer, is involved in a bitter iron ore royalty dispute with the Chinese state enterprise CITIC, and there are allegations that the joint venture somehow partly funded Palmer’s election campaign.

The rights and wrongs of the dispute are another matter. What’s important is whether China will respond to these events by making it more difficult for Chinese investors to buy Australian real estate.  

We are used to being tied to the Chinese in the iron ore market. But we have not yet connected the dots to recognise the size of the role that the Chinese are playing in important parts of the residential dwelling markets in both Sydney and Melbourne, and to some extent in Brisbane.

Official figures do not capture the impact. We have just seen development land in Melbourne and Sydney with building permits double in price on the back of frantic Asian buying, funded by Chinese banks (The tidal wave of Asian money rushing into Australia’s inner cities, June 16).

We will be watching to see whether Chinese regulators turn off the real estate tap. My guess is that they will not, but there is a clear risk. 

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles