Despite the fact that the Australian economy as a whole has remained in positive growth territory since the US mortgage crisis in 2008, there is growing concern about the different directions of the Australian property market and the economy. A number of reports over the last few days have highlighted the correlation between Chinese immigration and local property prices, something which is certainly starting to emerge in Australia.
What are the dangers of mass investment in the Australian property market and can one immigration group make such a big difference?
Chinese property investors
Over the last few months we have seen a significant increase in the number of Chinese property investors acquiring assets in Australia. Many of them have already moved to Australia to start a new life, taking advantage of the close relationship between the two countries, and historically the correlation between Chinese immigration and property price increases takes about three years to come through.
Quote from AustraliaForum.com : "I want to buy a cheap house in Australia."
We are talking about relatively small property assets up to the multimillion dollar showbiz homes which adorn many of the glossy showbiz magazines. This seems to be an en masse investment from Chinese investors and while welcomed as a means of supporting the property sector, the property sector is now going upwards while the economy seems to be slowing. What are the consequences of this?
It is fairly obvious that if the Australian economy continues to slow them this will put pressure on the employment market and indeed investors will see a reduction in their relative spending capacity in the future. This reduction in relative spending capacity will mean that as property prices continue to rise they will move further and further out of the range of the traditional Australian public.
There will be some short-term respite for the ongoing squeeze in property prices as domestic Australian demand reduces, but at this moment in time it seems as though Chinese investors are taking up the slack and more. Such is the possible threat of property prices "overheating" the Reserve Bank of Australia has actually priced in the potential impact of Chinese investors when looking at future forecasts.
Why the sudden wave of money?
Over the last 10 years or so we have seen the relationship between Australia and China become ever closer as the Chinese authorities look to secure a flow of natural resource assets in the future and the Australian government looks to Chinese immigrants to fill skills gaps. We've also seen a streamlining of the immigration system between the two countries which has in many ways made it easier for Chinese immigrants to move to Australia and vice versa.
There are also a number of curbs on property investment in China which will have impacted those looking at property assets in the future. The ongoing close relationship with Australia, and the location, makes the country an obvious choice for Chinese investors. It will be interesting to see how far property prices are pushed and indeed when potential sellers will become interested in ever rising prices.
When you take into account the relative strength of Chinese money flooding into Australian property assets and the fact that in many cases there is a reduction in property assets for sale, this squeeze is also impacting prices. It would only take a relatively small reduction in Chinese money invested in property or an increase in properties for sale to at least stall the ongoing trend.