Chinese homebuyer alarm is a case of deja vu

Almost three decades after Keating restricted the purchase of established houses by foreign buyers, Australia is having a strikingly similar debate to one we had back in the 1980s.

In the 1980s, Australians were concerned about Japanese investment entering the country, and in particular real estate in Queensland, which culminated in the “Heart of the Nation” group on the Gold Coast that opposed the “Japanisation” of Australia.

The Japanese government’s ill-conceived ideas, such as the “Silver Columbus 1992” which proposed to locate retirement villages in Australia, turned public opinion against Japanese investment. Newspapers like The Age accused Japanese investors of taking advantage of the weak dollar to buy up property and, in the process, dashing the hopes of aspiring Australian buyers.
 
Japan's embassy found that 75 per cent of respondents surveyed wanted no further increase in Japanese investment. In Queensland, that figure reached as high as 86 per cent. However, the same survey also found 61 per cent wanted more trade with Japan and 70 per cent wanted more tourists from the country, according to Chris Pokarier’s article, “The controversy over Japanese investment in Australia, 1987-1991: Context Lesson”.

In the 1987 election, Treasurer Paul Keating announced a new policy that significantly restricted the purchase of established houses by foreign buyers who were not permanent residents. Almost three decades later, Australia is having the same argument about Chinese investment, and the current debate is strikingly similar to the argument we had back in the 1980s. It seems we have not learnt much from history.

The Japanese didn’t colonise Queensland. Golf courses bought at the height of the speculative property bubble for $200 million were sold for a fraction of the original price tag at a leaner time. The issue of Japanese investment is hardly raised now despite the fact that Japan is still one of the largest investors in the country.

Displaying a marked similarity to the Australian attitude towards Japanese investment in the 1980s, a 2013 Lowy Institute poll indicated a majority of Australians (57 per cent) think the government is allowing too much Chinese investment in this country. At the same time, 76 per cent of those surveyed thought China was the most important economy to Australia.

The attitude of Australians to foreign investment has not changed much over the last 30 years. It seems people are happy to sell commodities and host tourists, but do not like foreign investment in mining and real estate.

But the uncomfortable truth for resources nationalists is that Australia is not able to develop its mining industry without foreign capital. Since the earliest days of the Australian mining industry, the country has been relying on offshore funding.

Former BHP chief executive Brian Loton says Japanese demand and capital was crucial for the development of the mining major. In fact, the company invited its Japanese customers to invest in projects like the Escondida copper mine in Chile and Hamersley in the Pilbara.

Foreign investment in the property sector is much more controversial and is inevitably linked with the issue of housing affordability, which is becoming a galvanising issue for the community. However, much of the debate is based on hyperbole, hearsay, and anecdote.

Figures from the Foreign Investment Review Board are sketchy at best. The oft-cited $5.9 billion investment in real estate from Chinese investors should be treated with caution. All bidders for the same property need to submit applications to the board, so there can be a lot of double, or even triple, counting. At the same time, there is no effective mechanism in place to monitor people who don’t even bother to submit applications.

What we need are accurate figures and an effective monitoring mechanism to ensure the integrity of the system. We can never put the question of whether foreigners are driving up the price to rest if we have questionable data. The issue is complicated by different state legislation on real estate purchases, and Queensland is the only state that requires buyers to disclose their nationalities.

The government needs to have better data on foreign investment in the housing sector in order to have a more rational discussion of the issue. Otherwise we can only expect people to rely on anecdotal evidence to reinforce their bias.

Though the current legislation requires temporary residents to sell their properties when visas expire, there is no effective mechanism to enforce that. If the government wants to maintain the integrity of the system, FIRB must be given more resources to monitor it. Its principal function to date has been that of an adviser rather than a feared regulator.

The most important lesson from the 1980s boom in Japanese investment is that the fear of a Japanese takeover of Queensland was misplaced. In fact, quite a few Australians benefited from overzealous Japanese investors who were happy to pay above market prices for properties.

Though we need to be vigilant of foreign speculative influence in the housing sector, it is equally important to look back in history to remind us that fearful forecasts of foreign takeovers never really eventuate.