by Robert Carbery
Chinese buyers are bringing inflation to the country of their choice – Australia.
These cash-rich buyers are looking to secure the property they want by any means necessary, regularly outbidding Australian buyers by $100,000 or more.
Andrew Talyor, co-founder of property website, juwai.com, estimated that Chinese investors spent some $5.3 billion buying Australian residential real estate in 2013 but this number would skyrocket to over $38 billion in 2014.
On many occasions, Australian buyers find a home they want to make an offer on in a highly desirable neighborhood only to find out that the property was already sold for way over the asking price to an overseas cash buyer. Many times, Chinese buyers have plans to knock down the existing house if it is a bit dated and subsequently spend even more money building a new one on the site. This trend has been playing out over the last few years.
China’s economic growth over recent years has resulted in more of its citizens having a much greater purchasing power. This same trend of Chinese cash buyers injecting incredible demand is also playing out in the commercial real estate world and the residential markets of the Pacific Northwest and other highly desirable areas across the globe at the moment.
Juwai’s Talyor said, “The true power of the Chinese buyer is represented by more than 63 million people whose wealth and incomes provide them with the ability to purchase international property.” Furthermore, of the 90 million Chinese real estate shoppers online every month, over 60 percent pay in cash. And this was in 2014.
Another area experiencing the rush of Chinese money to its residential housing market is Vancouver, British Columbia.
Vancouver home prices increased 40 percent year-over-year last December and after the province of British Columbia imposed a 15 percent tax on foreign buyers in August, there is now the shortest list of houses for sale in almost a decade even as the average home price surged to almost 20 times what the annual median household income is.
The tax on foreign buyers in Vancouver’s metro area has diminished the demand in the area. There is still money out there, but the 15 percent tax on buyers outside of Canada is steep enough to deter foreign money from flooding in. The government is hoping to give its own residents inside of Canada a better change of purchasing the property of their choice as opposed to being outbid by another Chinese buyer.
Should Australia follow suit and impose a tax to protect domestic homebuyers from overseas competition? Or should developers learn to increase housing supply more rapidly in overheated markets such as Vancouver, Sydney, San Francisco, and Seattle?
In the end, the United States remains the most popular destination for Chinese home buyers. However, mortgage rates are half as high in Canada which can lead to higher returns for investors. Still, the enticing economic growth in the U.S. is impossible to ignore.
Still, China’s deep-pocketed investors have cash to spend but are facing many more obstacles outside their borders these days. The Vancouver tax in addition to the U.S. cracking down on home purchases through Chinese shell companies has made it more difficult to buy a house outside of China.
Many home markets in the U.S. are quite competitive at the moment even without the outside demand of overseas cash buyers mostly from China.
Can the Chinese continue killing real estate in Australia and Canada? Or will they merely turn their attention to another top market?
The cash has got to go somewhere.
by Robert Carbery