Economy

Chinese Property Buyers Are Warping The Australian Market

Sydney's Darling Harbour
Sydney's Darling Harbour
Cai Yuan

SYDNEY — Recently in this city's trendy Darling Harbor district, a new high-end housing project of 581 apartments sold out in just five hours. One third of these flats — costing from 800,000 Australian dollars ($611,000) for a one-bedroom unit to more than 10 million ($7.6 million) for a luxury penthouse loft — were sold to buyers from China.

In recent years Chinese buyers have become a torrent in Australia’s real estate market, and the top real estate agencies all hire Chinese speakers to cater to these customers. Since last year, China has surpassed the U.S. as Australia's largest investor, which is largely due to real estate, which accounts for 84% of Chinese total investment in the country.

News about new rich Chinese spending big bucks buying luxurious properties are regular fodder for the Australian press. Investors from China’s booming coastal provinces, such as Zhejiang and Jiangsu, most often find these houses cheaper than those back at home. For instance, a luxurious house of between five to ten million Australian dollars (AUD) will cost more than twice as much in China.

The Significant Investor Visa policy set forth by Australia’s Federal government in the last three years has largely promoted these high-end property transactions, with investors able to obtain a right to permanent residence with a five million AUD investment. According to Australia’s Immigration Ministry, since the policy was launched in November 2012, 802 persons have acquired the special visa, of whom 90% come from China. In just the past three years, their investment in the country totaled 19.2 billion RMB ($3.1 billion).

UBS Suisse predicts that in the next six years, Chinese investment in Australia should reach 288 billion RMB. “The demand from Chinese people is equivalent to 23% of Sydney’s new housing supply, and 20% that of Melbourne,” says UBS analyst Hasan Tevfik.

​Cracking down

As a result Chinese demand has pushed up the two cities’ property prices. While the Australian economy is sluggish and unemployment is high, Sydney’s average property prices have gone up 12%, while those of Melbourne have risen 5% over the last year.

It's not hard to understand why house prices are rapidly outstripping wages, if one-fourth of new houses are bought by Chinese people. Tevfik notes that in order to meet Chinese homebuyer demand, Australia’s new housing supply must grow at a pace of 4% annually.

Investors, students, and new immigrants make up the bulk of Chinese buyers in Australia. As the country’s Immigration Ministry’s annual report showed, between 2013 and 2014, China has overtaken Britain as the country’s second largest immigrant source country with 26,000 newcomers.

As Chinese parents attach great importance to their children’s education, quiet middle-class residential communities with good schools most often see their property prices soar once Chinese families start to settle in. Melbourne’s Balwyn district is a perfect example. Thanks to the neighborhood’s well-reputed public high school and Chinese buyers’ speculation, the district’s property prices have soared in the past couple of years.

Meanwhile nearly 90,000 Chinese come to Australia to study in its universities, with many expecting to stay after finishing their studies; which often leads parents to buy houses for them.

Many also suspect that corrupt Chinese officials and their families make up a significant part of China’s property buying force. For example, out of the 100 corrupt officials wanted by China’s Central Discipline Inspection Commission, ten of them are believed to be hiding in Australia, including five with luxurious homes in Sydney and Melbourne. People have every reason to believe that the disclosed information represents only a tiny part of the graft.

The Chinese “invasion” has now aroused a lot of opposition from ordinary people as well as politicians. Even a fund company executive complained to me that he can no longer afford the housing prices. Recently he has searched several residential areas but each time he fancies a house, a Chinese buyer offers a higher price to snap up the house he wanted.

This week, the mayor of the city of Monash, a university town near Melbourne, urged the national government to tighten control over foreign investors buying local properties in order to allow locals to still afford to live there.

Last February the Australian government announced that it will henceforth enforce supervision over foreign investments. According to the country’s law, foreigners are not allowed to buy second houses. When buying new houses foreigners have to obtain approval from the Foreign Investment Review Board, though the commission’s review is relatively loose. Between 2011 and 2012, only 13 foreigners were refused, making up only 0.01% of all applicants.

While purchasing costs have gone up, the Australian government is also combating, in a high profile way, the illegal sale of second houses to foreign buyers. A special action team was formed by the Australian Taxation Office to trace illicit purchases. Xu Jiayin, a real estate tycoon who also owns one of China’s biggest football clubs, was the first target of the government’s new policy. In a press conference, Australia’s Finance Minister requested that Xu sell his 40 million AUD ($30.5) house as soon as possible.

It would not surprise anyone if his buyer turns out to be someone else Chinese.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
THE LATEST
FOCUS
TRENDING TOPICS
MOST READ