The Reserve Bank of Australia (RBA) has increased rates by almost 4 per cent since May last year. Given the dramatic rise in borrowing costs and the decline in consumer confidence to levels last seen during a recession, few expected Sydney to recover so quickly. “It’s surprising in the sense that consumer sentiment is signalling recessionary conditions, lending is tight and Sydney was unaffordable to begin with,” said Tim Lawless, executive research director, Asia-Pacific, at CoreLogic.
One of the factors that has contributed to the rebound in prices is the surge in net overseas migration – driven by the recovery in international student arrivals – since Australia’s borders reopened early last year. The population grew 1.9 per cent in 2022, the highest rate since 2008.
Passengers arrive at the Perth domestic airport in Perth, Australia, on March 3, soon after Australia relaxed its Covid-19 controls and reopened its borders. Photo: EPA-EFE
This has shone a light on foreign demand for Australian property, particularly from Chinese buyers who have been a convenient scapegoat for driving up prices. According to data from Australia’s Treasury, mainland China was the single largest source of foreign investment in Australian residential property in the final quarter of 2022, having been the biggest investor by a considerable margin in 2020-21.
Some property experts and commentators in the Australian media have seized on these statistics as evidence that Chinese buyers are more active in the property market. Tom Panos, one of Sydney’s leading real estate auctioneers, said in a radio interview in July that “the Asian buyer is back” and that he could sense “some resentment towards international investors”.
Senator Pauline Hanson, head of the right-wing populist One Nation party, has called for a blanket ban on foreigners purchasing residential property in Australia, claiming Chinese investors were driving up prices and putting home ownership out of reach for young people.
Not so fast. Aside from the fact that the data on foreign investment must be put into context, pointing the finger at overseas buyers is a distraction from the underlying problems bedevilling Australia’s housing market.
First, gone are the days when overseas buyers were a key driver of Australian residential property transactions. According to the latest quarterly property survey from National Australia Bank published in July, foreign buyers accounted for 9.2 per cent of new home sales in the state of New South Wales in the second quarter of this year, down from a high of more than 20 per cent in early 2015.
Shoppers at Chatswood Mall in the Chatswood suburb of Sydney, Australia, on October 28, 2021. Chinese purchases in Sydney are concentrated in a small number of suburbs with a high proportion of Chinese residents, such as Chatswood. Photo: Bloomberg
Second, Chinese purchases in Sydney are concentrated in a small number of suburbs with a high proportion of Chinese residents, such as Hurstville, Burwood and Chatswood. The overwhelming bulk of the buyers, moreover, are permanent residents or Australian citizens of Chinese descent.
“Most of the transactions are no longer foreign transactions, they’re local ones [often involving] the same group of people who bought in the past,” said Peter Li, general manager at Plus Agency in Sydney.
Third, disincentives for foreigners acquiring real estate in Australia have increased significantly. Foreign ownership is limited to new developments while additional taxes and fees on overseas buyers have risen markedly in recent years.
Moreover, the sharp rise in rates and the crisis in China’s own housing market have hit Chinese buyers of Australian luxury properties hard. “It has flushed out the high-end penthouse buyers,” Li said.
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Boom, bust and borrow: Has China’s housing market tanked?
Boom, bust and borrow: Has China’s housing market tanked?
Fourth, if any group of investors is to be blamed for driving up Australian house prices, it is local ones who continue to benefit from tax concessions – notably the negative gearing of investment properties that allow landlords to offset losses incurred from renting against their taxable income – that disproportionately benefit higher income earners, many of whom own multiple properties.
Yet, the decisive factor in the sharp recovery in home values in Sydney is the severe shortage of housing which has become more acute since the borders reopened. The rebound in prices “is a good case study of simple supply and demand”, Lawless said.
More worryingly, Australia faces a huge shortage of new homes because of the failure to enact much-needed planning reforms to encourage the development of medium- and high-density housing. Although the Labor government of Prime Minister Anthony Albanese recently introduced measures to boost supply, little will happen in the short term, making it more likely that the recovery in prices will endure despite significant financial and economic headwinds.
Foreign investors, in particular Chinese buyers, will remain a convenient scapegoat for the housing affordability crisis, not just in Australia. But even a cursory examination of the main determinants of house prices shows domestic factors are far more consequential. Sydney’s rapidly recovering property market is no exception.
