Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Friday, 21 March 2014

Lucky 888?

I'm rarely short of ideas of what to blog about, but when meandering into town and along George Street yesterday an idea came to me, like a lightning bolt from above...

Why not, thought I, write a blog about Chinese property buyers in Australia? After all, there have only been, what, a few hundred of them in the last few weeks? Fairfax, in particular, seems to be averaging around one article per day on the topic.

Lame sarcasm aside, it struck me that although I did write a piece about the Foreign Investor Review Board (FIRB) Annual Report last week here and I dealt with the facts as reported by the FIRB, perhaps what was missing was some opinion. 

After all, we now know the reported numbers of foreign buyers don't amount to all that much, but what about what goes unreported? Indeed, why are there so many articles about Chinese buyers at the moment at all? Are they justified or misguided? I mulled over a few thoughts and a few of the reasons:

1 - Existing demographics

I blogged this week a few findings from the 2011 Census, which showed that at that time 319,000 Australian residents were born in China, with India (295,000), Vietnam, the Phillipines, Malaysia and Sri Lanka being the other Asian countries which featured prominently on the migrant countries of origin list.

Given that half of all migrants to Australia live in just two capital cities, naturally there is going to be a strong media emphasis on developing trends in the Asian buyer market. 

But migrants who were born overseas, of course, are only a small part of the story as it relates to what the media insists on terming "Asian buyers" - the 2011 Census showed that in total 2.4 million Australians (12%) declared themselves to have an Asian ancestral background. 

2 - The restricted role and scope of the FIRB

I guess the absolutely key point is that, while the FIRB reports the numbers of approved foreign buyers of real estate (both residential and commercial), what nobody seems at all sure about is the number of foreign buyers, or rather, the amount of foreign capital which circumvents the rules.

I think it would be fair to say the FIRB is relatively toothless in this regard, in part due to a lack of available resources in order to ascertain what is actually happening on the ground. 

Is anyone policing whether buyers of real estate hold Australian visas? Do regulatory bodies even care? How often are funds transferred from overseas to genuine visa holders for them to buy on behalf of friends or relatives?

There seems to be a widespread and growing consensus, in certain parts of the online community at least, that funds are flowing in from China, regardless of what the rules and the FIRB say.

3 - Significant Investor Visa - Supply

Well, they always tells us that economics comes down to supply and demand, don't they?

So what about Australia's Significant Investor Visa program, which allows non-residents that invest A$5 million in qualifying assets a fast-track through to Australian citizenship?

Well, never let it be said that Department of Immigration has no sense of humour, for instead of giving the Significant Investor Visa a boring name like the 'Skilled Working Visa subclass 457', they opted for the shamelessly pro-Chinese visa 'subclass 888'.

And very prophetic they were too, since 9 out of every 10 applications to date has indeed hailed from the Chinese mainland.

To date fewer than 100 such visas have been approved, equating to perhaps a little over half a billion dollars invested in qualifying assets (predominantly in New South Wales and Victoria), with around another 600 or so applications pending. 

But even assuming that all of these applications are whizzed through in double-quick time, that's only likely to be ~$4 billion invested in qualifying assets and 700 prospective resident buyers of expensive residential real estate. 

So, why all the fuss then?

One possible clue: the regulatory rhetoric certainly suggests to me that Australia appears terribly keen to fast-track as many of these visa as possible. 

Take New South Wales (NSW) Trade & Investment's advice on Business Migration for example:

"Applicants can expect their applications for NSW Government nomination to be processed in 5 working days...

...NSW was one of the first Australian States to develop a ready-to-go designated investment vehicle for the Significant Investor visa in the form of NSW Waratah Bonds..."

Ready-to-go investment vehicles, eh? And applications should be processed in five days...hang on, 5 days

I'm a bit out of the loop when it comes to migration processed, granted, but that's certainly not how I remember visa processing times working in the 1990s!

Back then, in the Australian High Commission in London, the advice was more along the lines of:

"Yeah, nah, if you pop down to The Strand in a few months' time you can queue up with a few thousand other people and you might - or might not - get your visa then.

We'll try to find your application, of course, amidst the piles of paperwork but take no responsibility if we can't due to typos, spelling mistakes, filing errors or backpackers working at the High Commission.

Oh, and the office'll only be open between 12 and 2pm on a Thursday arvo, so if we don't get around to it, you'll have to come back another time..."

Anyway, perhaps I need to let that unfortunate experience go, but it rather sounds to me like a Government which aims to push the Lucky 888 Visa applications through pretty hard.

4 - Significant Investor Visa - Demand

Numbers processed to date may be relatively small, but what about latent demand?

Canada very recently announced that it was scrapping its Significant Investor Visa program amid concerns of sky-high real estate prices and an associated backlash. Meanwhile, the US is reportedly considering whether to cap the number of its visa for Chinese applicants.

Applications had already been frozen in Canada back in 2012 after a veritable flood of applicants overwhelmed the system - immigration staff were totally unable to cope with the backlog.

Before its suspension the Significant Investor Program introduced some 185,000 migrant applicants into Canada over the years since 1986, around 67,000 of whom hailed from the Chinese mainland.

High and dry millionaires

Of the 65,000 applicants left high and dry by the suspension of the program, tens of thousands of Chinese millionaires - 46,000 of them in the proverbial queue at the Canadian Hong Kong consulate - have had their application fees returned with no visa issued.

So, what is the likely alternative destinations for applicants? Based on the available data, one assumes that the US (while applications remain possible), London, Sydney and Melbourne would likely feature prominently on the list.

Summary - opinion only...

A major cause of the furore and the hyperbole to date has been the lack of transparent reporting of information.

Although the Australian Government has resolved to undertake an inquiry into foreign investors in real estate, the terms of reference appear weak and the report is not due for seven months in any case.

Clearly, there is a vast wall of Chinese capital out there looking for a home, and it seems likely that a proportion of it will eventually find its way to these shores.

Research by the firm Hurun found that of wealthy Chinese with more than 10 million yuan in the bank, two-thirds had emigrated from China or planned to do so.

Our experience in London has shown that following the sheer volatility of equities markets through the financial crisis there has been a tremendous demand for prime location real estate from international buyers, particularly from less stable countries. 

However, the demand for real estate in Britain has to some extent been focused upon central areas of London, and remains skewed towards relatively expensive housing stock.

Clearly as a Sydneysider, I'd be bound to believe so, but in my best estimation foreign capital reaching Australia appears likely to be disproportionately weighted towards central Melbourne and central Sydney (certainly the early 888 visa applications have mostly been for NSW and Victoria), although various surveys of wealthy Asian buyers have suggested that other states may also see significant activity.

I guess it all remains a case of 'watch this space'.