Foreign investment is overheating our property market

John says:

10:55am | 10/04/10

Agree, even if it only contributes to a small amount of extra demand in the housing market, its still against the interests of all Australians. But will the Liberals change the policy, or will their property developer mates who are Labor’s mates also say no.

Ryan says:

10:12pm | 10/04/10

Paul: 35% in the last month in our area, hardly a tiny fraction wouldn’t you say?

persephone says:

10:52am | 10/04/10

They don’t have to chase Tony, he gives them times and places - journos don’t just happen to be on hilly roads outside Canberra before dawn, coincidentally at the same time Tony’s out bike riding.

If the Leader of the Opposition thinks that his cycling exploits are more important than policy announcements, the media can’t be blamed for taking what they are given.

Andrew says:

11:15am | 10/04/10

persephone - my point is the MSM spend the majority of the time chasing Abbott (last time I noticed he is the Opposition , not the Government) I would think in the interest of the Australian voter it would be more beneficial to the voter to have more issues regarding the Government covered and focused on by the MSM instead of sitting o hilly roads outside Canberra before dawn. Sometimes Persephone I’m sure if Rudd and his Government said nuclear war was a good idea you would find away defend that for him.

Grumbles says:

12:55pm | 10/04/10

I think Andrew’s point is that the media (and persephone) and everyone else in Australia has a right to be worried about what the opposition would do AFTER an election has been called. Until then, Labor are in the driver’s seat and they are steering Australia, so the media (and persephone) and everybody else should be questioning what the Government is doing. Since day one the Rudd government has been in election campaign mode, and the media have lapped it up.

persephone says:

11:07pm | 10/04/10

It might be, of course, that I question what the government is doing and then are happy with the answers I receive.

Just sayin’.

Oh, and I agree the media is pathetic.

sickofyou says:

12:44pm | 11/04/10

Perse-phoney says,
“It might be, of course, that I question what the government is doing and then are happy with the answers I receive”.
You don’t question the Government you defend anything and everything they do. If sometimes you didn’t agree and defend everything they do you might have some credibility, but with you this isn’t so. So your never ending defence of Rudd and his Government is hollow! Rudd is your Messiah and you sound like a fool. Must be time for your afternoon nap isn’t it?

Wombat says:

02:06pm | 11/04/10

I agree with Andrew. We see far too much of Tony. The less we see of him the better.

While Persephone makes a good point about Tony tipping off the media, it really has to be asked: is anyone actually forcing these journos to answer their phones?

I think that when it comes to Tony Abbott in lycra or budgie smugglers, the media really has to learn to Just Say No!

Geoff says:

08:19pm | 11/04/10

The media deliver what the public desire. I blame the education system for producing an increasingly dumb population.

Mike says:

07:01am | 12/04/10

Geoff what about the billions given by Conroy to the TV stations so they will play nice this elections.

Nathan H says:

10:29am | 12/04/10

It’s not JUST Conroy’s bribes, it’s advertising.

The realestate classifieds are a HUGE income stream for the papers. With a lot of the classifieds going online, the papers are desperate for the print advertising dollar, so they give the REIV exactly what they want: good press. Lot’s of articles quoting lenders who say housing is affordable, and that it only goes up, so it doesn’t matter what price it is etc.

I was renting a place in Doncaster for $500 and a smaller place two doors up was sold for $780,000 to a mainland chinese buyer. It’s got to the stage where even Hong Kong chinese buyers are being heard to mutter “that’s just crazy” after the hammer falls. I can’t believe people say rent is dead money when the interest component outstrips the rent by a long way.

fed up says:

11:35am | 10/04/10

Max.
Spot on.

Problem is ALL political parties are in the business of being re elected and are too GUTLESS to take a stand. Instead they want to brainwash everyone by pushing the line ’ we are all global citizens’. BULLSHIT.

Krudd would be happy if we had an Asian Union - EU style just like NObama would like an American one. Destroying our social cohesion, overcrowding our cities, increase in welfare and big government is a plan for both Labor and Liberal. Look how bad it is in the UK.

Australia needs action on this NOW.  12 months or two years from now is TOO LATE. I think immigration should be slowed to a trickle until our state governments spend on major public transport infrastructure and address issues like nursing home care and generational welfare dependency… just for starters.

No one i know wants to see our cities become high rise, high density slums. UN Agenda 21 is being carried out in out cities under the guise of sustainability when it is a plan for social breakdown and breakneck speed.

And Andrew I’d like to know if you’d take any action on these issues or just make a very bad situation worse?

Robert Smissen of God's Own Country, Rural SA says:

12:01pm | 10/04/10

Peter I suggest that you go & wait at the kerb for the yellow car, they will be along shortly to take you back to safety.

CynicalGoatWA says:

12:09pm | 10/04/10

“...thank God he has come around to keeping our borders strong as well”......please tell me you are taking the mick Peter.

And Kevin Andrews will be “delighted” with the fact there is someone in Australia who considers him left-wing

Russ says:

04:04pm | 10/04/10

Does no-one understand sarcasm when it is written down?

jed says:

11:13am | 10/04/10

c’mon john, you’re not this naive are you?
government for the people? you surely are kidding, you need to ask yourself who is donating to the government that would want to keep the population rising and allow anyone to come and buy.
the real estate industry, the land bankers and the developers! this government is deep in their pockets and the liberals aren’t much better. they need to keep this ponzi scheme going with more buyers.

why do you think the urban taskforce is already out tutt tutting the new joke of a population minister, i’m sure he’s already had a visit so he knows their views. us? we don’t really matter.

John Dark says:

04:42pm | 11/04/10

All politicians are beholden to their masters in the multinationals. KRudd is also beholden to his mates in China, as well as his wife’s contemporaries.
They only have to appease us every 3 years - but they have to appease their true masters each and every day. Who do you think is going to get better service?

chris says:

05:02pm | 11/04/10

The sad fact is that most voters are also home owners so their interests will come first. Kevin is the Kelvin of the Liberals. Tony Abbott was supportive of the FIRB changes in an interview with Neil Mitchell so no one should believe the Liberals give any more of a shit about the poor renters than the ALP.

transcript from said interview (17/2/10);
CALLER:

Hi there. Um, I just had a question for Tony about the Foreign Investment Review Board changes that were made last year or the year before that has meant that it’s been easier for foreign investors to purchase property in Australia, and I understand that one of the changes was the change to the definition of new dwelling that’s meant that a lot more homes have been able to be purchased by overseas investors without approval and what the Coalition would do if they came into government to tighten that up again?

TONY ABBOTT:

Yeah, Natasha, look, I don’t claim to be full bottle on that change, I’ve got to say, and I wouldn’t want to make any hard and fast commitments until I got up to speed on it, but can I just make this point: I don’t mind foreigners giving us their hard-earned money at a good price, and if I can sell my house for a half a million dollars to a local or for $600,000 to someone overseas, I think that there’s a tendency for me to want the best possible price.

NEIL MITCHELL:

It doesn’t do much for our kids trying to buy houses, though.

TONY ABBOTT:

Well, but on the other hand foreign investment generally is a good thing. We need it, it’s very important to the future success of our economy. Foreign trade is a very good thing, we couldn’t survive without it and look, we have to maintain the national interest, we can’t sell out locals, absolutely agree, but I’m just reluctant to join any hue and cry against foreigners when it comes to us getting a good price for our assets.

Joan says:

04:02pm | 10/04/10

Perhaps the foreign investment in house prices works like the domino effect you just need a couple of investors in an area to pay well above market value to set a new market value for the area and rest of house prices rise to new level.  I`m no real estate agent but that`s what it looks like to me.

Tom says:

12:18pm | 11/04/10

That’s because the government has deliberately made it impossible to measure the % of purchases with the changes that have caused all this!

Wombat says:

10:43am | 11/04/10

Scoobie

Some really good analysis there. I don’t think that there is any doubt that the real reason for record levels of immigration under the Howard govt. was to reduce pressure for wage rises.

I can’t see any reason for lefties to question your motives here. Unlike the genuine right-wing nutjobs (of which there are many at the Punch) you have shown that it is possible to explain the negative effects of high immigration without descending into bigotry.

Interesting point about racial tensions within Australia. Encouraging Australians to be welcoming towards new migrants was never an aim of the previous govt. The large increase in immigration from Africa was a perfect example. First you bring them in, then in the lead up to an election you run a scare campaign against them.

The Liberals have no credibility on immigration policy.

Mr Pastry says:

12:48pm | 11/04/10

Foreign investment in property is static at 1%.  Do watch out for real estate industry persons colouring the truth to keep the market buoyant.  How did Mr Reid know they were Asian, did he see all their passports,  the suburbs mentioned are popular with the “LOCAL” Asian community who can be Australians (we are a multicultural society you know).

Andrew says:

10:29am | 12/04/10

Lillie, Interest rate in many (most) countries are substantially lower than in Australia. In Japan rates are at 0%. When you add the banks line rate and other costs, depending on your financial wherewithal you will pay between 1.2 - 2.5% for your mortgage rate. The risk however is currency exchange.

You can’t buy our property in Yen, therefore you have to exchange in AUD. Now it gets a little complex because you might pay say $1m for a property in Melbourne. And lets say the exchange rate is $1=Y85 then you need to borrow say Y68,000,000 to buy the property (supposing you had a 20% deposit and not including stamp duty etc).

Okay, now lets say the AUD appreciated against the yen so that $1=Y100. Your $1m property (without any capital growth) is now worth Y100m, a tidy profit without any capital growth BUT if the AUD depreciates vs the Yen then you have not only lost money but also the equity in the home which may breach your banking covenants and cause foreclosure or at the very least the bank will ask for more security.

Having said all of that, when the GFC was in full swing the AUD in a 3 month period fell from $1=Y90+ to $1=Y55. If you were a foreign investor then you were in trouble. Since that time the AUD has risen in value vs the Yen to around $1=Y85.

If you were a canny investor from Japan and bought a property in Sydney or Melbourne for around $1m then in the last 18 months with the currency appreciation and recovery of property prices you would have more than doubled your money, and if you mortgaed in at say 75% that represents a 500%+ return on your risk capital.

Not bad work if you can get it.

Wombat says:

06:35pm | 12/04/10

Andrew

Wow! Great set of made up numbers!

I definitely agree that it’s possible to make a lot of money if you borrow a fortune, gamble it on a foreign currency loan and pick the perfect point to buy in and out of currencies that are fluctuating dramatically against each other.

In your example that provides a $350 000 gain to an investor sharp enough to pick the extremes of the $A/Yen exchange rate. But that still leaves us well short of your claimed 500%+ profit.

Just to keep things simple, let’s assume that your Japanese investor doesn’t have to pay such costs as: solicitor’s fees, agent’s fees, costs incurred in taking out the loan, cost of travel to Australia, property inspection costs and all the other costs that buyers always complain about.

Except for stamp duty. $40 490 on a $1m property in NSW. Our govt needs that to spend on hookers and limos. So your investor stumps up $290 490.

Now when it comes time to sell, I’m imagining that your imaginary investor is going to find some way to avoid: capital gains tax, solicitor’s fees, real estate agent’s fees, cost of travel to Australia, cost/penalties incurred in paying off the loan early, interest on the loan, cost of maintenance, rates etc on the property over the last 18 months and all the other costs that sellers usually complain about.

He’s a lucky fella. He’s going to have to be, because even if he somehow manages to avoid all these costs, in order to meet your 500% profit claim he will need to achieve a sale price of over $1.675m. That’s nearly a 70% increase in 18 months.

Anyone with any knowledge of real estate can tell you that new dwellings (the type that foreigners are allowed to buy) usually depreciate in value in the 18 months after completion.

Andrew, if you know where you can achieve these huge capital gains and how to avoid all these costs that everyone else has to pay, then I suggest that you get in and buy up!

Labor Ruined NSW says:

10:48pm | 10/04/10

Hey Wombat,

that is your name right? Since when has a government that paid off $90 billion dollars of Labor debt and left a $20 billion dollar surplus for Labor to spend been incompetent. Labor= spend, spend, spend, and then when the country is up to it’s eyeballs in debt everybody elects the Libs to pay it off. Mate, you have a warped sense of incompetence, I would hate to see you in your place of work.

Wombat says:

01:38pm | 11/04/10

LRNSW

Yeah, you got my name right. Well done! Unfortunately it was all downhill from there.

Debt Truck Launch, 20 Sept 1995
Howard: “I can promise you that we will follow policies which will, over a period of time, bring down the foreign debt… our first priority in government will be to tackle the current account deficit.”

Brisbane Times, 13 Mar 2010
Ross Gittins: “...net foreign debt increased by more than $396 billion during the 11 years that John Howard was in power…”

The switch to a focus on government debt was due to Howard’s complete failure on foreign debt. It was also a great way to fool economic illiterates. Obviously it worked on you.

It’s nice that you are interested in the quality of my work. Fortunately or not, the quality of my work has had little effect on my levels of remuneration (in recent years) or my wealth. And you are unlikely to ever see me work unless you visit the slums of Asia.

I sniffed the wind in 1996 and the smell was foul. But I couldn’t think of a good reason not to make money from it. A few months after Howard was elected I loaded up with debt and bought my first property next to a beach in Sydney’s eastern suburbs.

I retired from paid work at 42. I was able to do that not because of the profits of my labour but because of the massive increase in residential property prices that occurred under the Howard govt. Unlike many people in my position, I don’t kid myself that my financial position is due to my hard work.

For people of my age who were prepared to take a punt it was all too easy. Pity the kids today, though. Pity that for nearly 12 years we had a government that showed no concern for the ability of young Australians to afford their own homes.

Facepalm says:

03:41pm | 11/04/10

Spot on, Wombat. The current flavour of the month is “blame it on the foreigners.” Actually, now that I think about it, that flavour’s been around quite some time now. It definitely was not the enormous number of Australians who jumped into the investment property market over the last decade and a bit (and mortgaged themselves to the hilt to do so) that created the present property bubble. And it most certainly has nothing to do with that irresponsible policy move called the first home owner’s grant, which encouraged even more people to bury themselves under a mountain of debt they were deluded into thinking they could pay off.

It should come as no surprise that a political has-been would try to deflect the blame for a mess that was the creation of his own colleagues. And people wonder why I have no allegiance to any political party…

Joan says:

04:06pm | 10/04/10

Rudd just making sure his million dollar properties go up im price - securing his future

jed says:

07:00pm | 10/04/10

and it crashed at 5x income in the US, we’re currently at 9x

Formersnag & swinging voter. says:

02:18pm | 11/04/10

@ Micheal & Jed, And your 2 comments are the closest to the truth. The process by which the rich, get richer & the poor, get poorer, is primarily driven by the Boom/Bust cycle. In the last recession, after the 1987 stock market crash, mortgage belt real estate, dropped just as far as the stock market did.

The current continuation of the real estate bubble, is to suck in a few more fools before the inevitable crash comes. When your wealth has reached the “filthy, stinking, rich” levels, too many billions, are never enough.

http://www.bibliotecapleyades.net/archivos_pdf/nonedarecallit_conspiracy.pdf

This book was written in 1971 & covers the history of the “international banksters” from the 1800’s till then. How they promoted, the “hyper boom, roaring twenties” before the “great depression”. How they, then promoted the next, “boom cycle” after picking up the world’s best assets, at rock bottom prices. That was WW2, BTW.

peter schiff was right says:

05:23pm | 11/04/10

sshhhhh former snag
don’t mention the banksters
you’ll awaken the sheeple and that could get ugly…
the question is - has australia been pardoned this big fall due to its resources that are feeding china?

ohh and btw and wasn’t kevin and malcolm doing a slap up job assisting them to more of our money via carbon trillions?

reddy says:

05:36pm | 11/04/10

How nice for YOU Mike.
However this is Australia.
As an Australian I’d like to own a home without selling my soul to a bank for the next 50 years whilst maintaining a reasonable quality of life.
Sound fair or should we drop all foreign investment restrictions and hike up immigration until we are all living in dog boxes or cramped up with 10 other people or living 2+ hours drive from work?
watcha think mike?

lols says:

07:35am | 12/04/10

I wonder if the AFP read this, Sean.

Wombat says:

06:29pm | 12/04/10

I thought your girlfriend was going to pay for it all.

It’s the future for Australian men - to be used as toys by wealthy Asian women.

Just accept it and it will all go a lot easier.

Facepalm says:

08:00pm | 13/04/10

“Vote Random”

Or better yet, leave your ballot blank.