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05-07-2013, 09:27 PM
BY:JAMES GLYNN AND ROSS KELLY From: The Wall Street Journal July 05, 2013 4:08PM
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An aerial view of Altona at Point Piper, Sydney, which is thought to have been bought by businessman Xiuzhen Ding.
CONVENTIONAL wisdom says a nation's house prices swing in tandem with its economy. But in Australia, economists are paying increasing attention to another influence on the real estate market: Chinese immigration.
Wealthy Chinese are now among the biggest buyers of real estate in Australia, spending tens of millions of dollars on properties ranging from waterfront mansions with views across Sydney Harbour to more modest homes in the suburbs.
In one of the biggest purchases this year, a Chinese buyer spent more than $50 million to acquire a luxury home called Altona in the exclusive Sydney suburb of Point Piper that's frequently been rented out to celebrities, including U2 frontman Bono. Weeks earlier, a nearby mansion in Point Piper dubbed the Bang & Olufsen house because it resembles a hi-fi system sold to a Chinese buyer for more than $30 million.
Australia has long courted China's affluent elite. A recent program lets foreigners settle in Australia for up to four years, in exchange for a minimum $5 million investment during their stay. The first visa went to a Chinese toy maker.
Now, the influx of Chinese money is starting to skew Australia's real estate data, which is closely watched by policymakers including the nation's central bank.
Economists at Citigroup think they've stumbled across a previously unknown connection between Chinese migration to Australia and property price growth. While retooling the computer model that churns out the bank's predictions for house prices, they found shifts in Chinese migration consistently led moves in property prices by three years. So strong was the relationship in the data, Citigroup has now worked it into its equations.
"The story of the rich Chinese businessman snapping up a $40 million mansion in Point Piper is a trend that isn't likely to end anytime soon," said Joshua Williamson, a Sydney-based economist at Citigroup.
The bank said there wasn't a similar relationship between total immigration to Australia and local property prices, and the reasons why arrivals from China show such a strong correlation isn't clear.
"It could be that Chinese immigrants have the income capacity and desire to buy property, more so than other nationalities," said Paul Brennan, chief economist of Citigroup's Australian operations.
More immigrants arrived in Australia from China during the fiscal year through June, 2011, than any other country. Although immigration from China fell 9 per cent in the following year to rank behind arrivals from New Zealand and India, analysts and realtors point to several factors that should keep buying interest in Australian property strong.
Curbs on property speculation in China are forcing mainland Chinese investors to look internationally for assets, including in Australia.
Australia's school system is also a drawcard. A survey by HSBC this month showed growing interest among the parents of Chinese children studying in Australia in investing in or purchasing property in the country.
International education was Australia's fourth-largest export last year after iron-ore, coal and gold, generating about $14.5 billion in export revenue, government data show.
Further impetus is coming from the falling Australian dollar, which is down 10 per cent against the greenback over the past two months. That's making property more affordable for overseas investors, says Richard Simeon, a real estate agent located in the Sydney waterfront suburb of Mosman, which has panoramic views of Sydney Harbour.
Mr Simeon, who has sold close to $30 million in homes to Chinese buyers in the last few months alone, is resorting to an unusual tactic to meet demand from wealthy clients. "I'm putting on a bus and taking them around and then trying to find out their price ranges," he said.
To be sure, Australia restricts the type of property that can be owned by foreigners, in a bid to limit the potential for a real estate bubble. Temporary residents are allowed to own a home while they live in Australia, but must sell when they leave the country. Anyone, however, can buy a vacant lot or a new home being built.
Such restrictions aren't deterring investors. Simon Henry, co-founder of juwai.com, a China-based website connecting wealthy Chinese property investors with real estate sellers internationally, says Australia lags only the US in terms of interest in buying new homes.
China accounted for $4.19 billion, or 7 per cent of the $58.40 billion of foreign investment on commercial and residential real estate in Australia in the year to June 30, up slightly on a year earlier, according to Australia's Foreign Investment Review Board, a government watchdog. That ranked it the third-biggest investor behind the US and Singapore.
Data measuring amounts invested by Australian citizens of Chinese birth isn't available.
Mr Henry thinks the real-estate market is in the first year of a seven-to-eight year cycle for Chinese home buyers.
While early real-estate deals overseas involved wealthy elites, this is starting to shift as middle class incomes rise. "Now there is a bigger bracket," Mr Henry said.
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An aerial view of Altona at Point Piper, Sydney, which is thought to have been bought by businessman Xiuzhen Ding.
CONVENTIONAL wisdom says a nation's house prices swing in tandem with its economy. But in Australia, economists are paying increasing attention to another influence on the real estate market: Chinese immigration.
Wealthy Chinese are now among the biggest buyers of real estate in Australia, spending tens of millions of dollars on properties ranging from waterfront mansions with views across Sydney Harbour to more modest homes in the suburbs.
In one of the biggest purchases this year, a Chinese buyer spent more than $50 million to acquire a luxury home called Altona in the exclusive Sydney suburb of Point Piper that's frequently been rented out to celebrities, including U2 frontman Bono. Weeks earlier, a nearby mansion in Point Piper dubbed the Bang & Olufsen house because it resembles a hi-fi system sold to a Chinese buyer for more than $30 million.
Australia has long courted China's affluent elite. A recent program lets foreigners settle in Australia for up to four years, in exchange for a minimum $5 million investment during their stay. The first visa went to a Chinese toy maker.
Now, the influx of Chinese money is starting to skew Australia's real estate data, which is closely watched by policymakers including the nation's central bank.
Economists at Citigroup think they've stumbled across a previously unknown connection between Chinese migration to Australia and property price growth. While retooling the computer model that churns out the bank's predictions for house prices, they found shifts in Chinese migration consistently led moves in property prices by three years. So strong was the relationship in the data, Citigroup has now worked it into its equations.
"The story of the rich Chinese businessman snapping up a $40 million mansion in Point Piper is a trend that isn't likely to end anytime soon," said Joshua Williamson, a Sydney-based economist at Citigroup.
The bank said there wasn't a similar relationship between total immigration to Australia and local property prices, and the reasons why arrivals from China show such a strong correlation isn't clear.
"It could be that Chinese immigrants have the income capacity and desire to buy property, more so than other nationalities," said Paul Brennan, chief economist of Citigroup's Australian operations.
More immigrants arrived in Australia from China during the fiscal year through June, 2011, than any other country. Although immigration from China fell 9 per cent in the following year to rank behind arrivals from New Zealand and India, analysts and realtors point to several factors that should keep buying interest in Australian property strong.
Curbs on property speculation in China are forcing mainland Chinese investors to look internationally for assets, including in Australia.
Australia's school system is also a drawcard. A survey by HSBC this month showed growing interest among the parents of Chinese children studying in Australia in investing in or purchasing property in the country.
International education was Australia's fourth-largest export last year after iron-ore, coal and gold, generating about $14.5 billion in export revenue, government data show.
Further impetus is coming from the falling Australian dollar, which is down 10 per cent against the greenback over the past two months. That's making property more affordable for overseas investors, says Richard Simeon, a real estate agent located in the Sydney waterfront suburb of Mosman, which has panoramic views of Sydney Harbour.
Mr Simeon, who has sold close to $30 million in homes to Chinese buyers in the last few months alone, is resorting to an unusual tactic to meet demand from wealthy clients. "I'm putting on a bus and taking them around and then trying to find out their price ranges," he said.
To be sure, Australia restricts the type of property that can be owned by foreigners, in a bid to limit the potential for a real estate bubble. Temporary residents are allowed to own a home while they live in Australia, but must sell when they leave the country. Anyone, however, can buy a vacant lot or a new home being built.
Such restrictions aren't deterring investors. Simon Henry, co-founder of juwai.com, a China-based website connecting wealthy Chinese property investors with real estate sellers internationally, says Australia lags only the US in terms of interest in buying new homes.
China accounted for $4.19 billion, or 7 per cent of the $58.40 billion of foreign investment on commercial and residential real estate in Australia in the year to June 30, up slightly on a year earlier, according to Australia's Foreign Investment Review Board, a government watchdog. That ranked it the third-biggest investor behind the US and Singapore.
Data measuring amounts invested by Australian citizens of Chinese birth isn't available.
Mr Henry thinks the real-estate market is in the first year of a seven-to-eight year cycle for Chinese home buyers.
While early real-estate deals overseas involved wealthy elites, this is starting to shift as middle class incomes rise. "Now there is a bigger bracket," Mr Henry said.