Chinese investors inflate Australian property market: London next?
Young aspiring homeowners in Australia are being faced with a ëlifetime of rentingí due to foreign investment from China, according to Credit Suisse, in a piece of news that bodes ominously for the people of London who are currently being subjected to symptomatic activity.
Credit Suisse identified that the Australian housing market is receiving around £2.7 billion worth of investment from Chinese purchasers each year, and the external inflation in demand at a rate faster than the production of supply is artificially putting the prices up on all property across the country.
And the result has been a 45% increase in the median costs of property in Sydney over the past decade, making the Australian housing market one of the most expensive in the world at this present time.
Credit Suisse utilised data from the Australian Foreign Investment Review Board, the Australian Department of
Immigration and the Australian Bureau of Statistics in order to form their report, though they did concede that they had not conclusively determined the levels of Chinese investment in the market.
30% rise in 6 years
Australiaís most densely populated areas of Sydney and Melbourne have been identified by Credit Suisse as the worst hit by rising property prices, with it estimated that they have risen by around 35% in the past 5 years.
Credit Suisse have argued that the primary factor behind the severity in rises has been external Chinese investment, with both cities being popular visiting places for people on the Asian continent.
Whilst property prices have been rising, Australian workers wages have failed to keep up at the same rate, and the gap in the market has been filled by affluent Chinese investors who in turn are putting up property prices even further.
Credit Suisse have estimated that the Chinese are currently contributing towards 18% of total house purchases each year in Sydney, and a slightly lower 14% in Melbourne, though they have forecasted this to rise in the near future with investment expected to keep pouring in.
"We estimate the number will rise by 30% by 2020. This should support a further $44bn of Australian residential property purchases over the next seven years," said the report's Sydney-based authors.
Ghost of things to come in London?
Alarmingly, the trend of external investors pushing up property prices for residents is very similar to what is going on in the English capital of London at the moment, where the average house rose by over 10% over the course of 2013.
Last month, the think tank Civitas and the EY Item Club both forwarded a new theory of why property prices are rising outside of the conventional arguments of Help to Buy, Funding for Lending and low interest rates artificially pushing up demand.
Both argued that foreign investors were artificially increasing demand at a rate faster than supply, and that the capital risked pricing out a generation if the government continues to attract foreign investment, without creating supply to help residents enter the property ladder as well.
Credit Suisseís findings bode ominously for the inhabitants of London, who will see the affects that foreign investment has had on Australiaís biggest cities of Sydney and Melbourne, where prices have risen by almost half in just 5 years.
Clearly, the government needs to act now and implement policy that affects house building levels and the production of low cost property that is in reach of the current generationís finances.
Whether this comes from the instigation of a large scale house building programme, which could potentially increase employment as well in the country, or through low levels of funding, this must be undertaken, otherwise two places in completely opposite sides of the world will have a generation that is ëlostí from the housing ladder.