Chinese buyers tower over Australian real estate

If unleashed, China's massive foreign reserves have the power to dramatically affect asset prices. In Australia it could turn the home ownership dream into a tenant reality.

Where China spends its vast $US3.7 trillion foreign reserves is going to dominate asset prices and developments around the world.

Right now apartments in Sydney and Melbourne are in favour with the Chinese. And Brisbane is also gaining support.

As a result, our two largest cities have cranes dotting their skylines with large numbers of projects in the planning stage. Most of the apartment developments are being built on the back of Chinese demand.

Our new editor of China Spectator, Peter Cai (蔡源), points out that that in just over four years China’s foreign exchange reserves have risen from $US2 trillion to $US3.7 trillion and China is looking to diversify its spending (Cashed up China Inc needs to spend, December 5).

While a lot of the Chinese demand for Sydney and Melbourne apartments still remains related to parents or relatives of Chinese students in Australia, buying from Chinese investors not connected with students is increasing.

I don’t think it will be long before we see a large tower completed and locked with no occupants. China has countless towers in that category and there is no reason to believe that, in time, the Chinese will not follow the same pattern out here.

Joining the Chinese are Australian investors. They include some self-managed superannuation funds but the predicted avalanche of superannuation investment has not taken place.

Of course running a bad third are young Australians. Although interest rates are low, they are being priced out of the apartment market or are reluctant to take on large amounts of debt. Many don’t care whether they own a dwelling or not.

Sydney’s largest apartment developer Harry Triguboff says the biggest price booster is the way that the department of planning and local councils approve projects, which holds up new developments by at least one or two years.

This forces the developers to have high holding charges, which boosts prices. In addition it creates uncertainty in the outcome of applications so does not allow enough units to be produced, which again causes costs and prices to go up.

In Melbourne there are similar problems but the real price booster is union work rules on large projects.

The high costs of apartments and the desire for conventional dwellings is kindling higher demand for outer suburban houses in most eastern states although Melbourne remains sluggish.

We are headed into a society that is very different to anything previous generations have experienced. The home ownership dream is fading, at least in the inner city, and is increasingly being replaced with a tenant relationship with Chinese landlords.

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