Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), & 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's 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 & charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, author of the New York Times bestsellers 'End Game' & '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 Hmmm, one of the world's most popular & widely-read financial publications.

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

Monday, 17 August 2015

Multicultural Australia (& the foreign buyer taskforce)

Festival time

A busy few days in Brisbane. I went down to the EKKA Royal Queensland Show on Thursday, with well over 400,000 visitors expected at the event for the week.



Being a show which celebrates Queensland's agriculture, it is largely representative of the "old" Australia, for want of a better phrase. In fact EKKA has been running in Brisbane since 1876!



On Saturday, the Korean Society of Queensland hosted another event in the city down at King George Square - the 2015 Korean Cultural Festival - so I took the opportunity to go down and watch a bit of "K-Pop", a wicked music genre which I became strangely drawn to a few years ago. 

I must confess I've never really gotten the hang of Korean food, though, despite my younger brother having lived over in Korea for the last few years.


Also on Saturday, Brisbane's Roma Street Parklands played host to its annual India Day Festival, which attracted 15,000 visitors and commemorates India's independence from the British Empire on 15 August 1947.

A statue of Mahatma Gandhi was unveiled by India's Prime Minister in the Roma Street Parklands only last year.

Never one to pass up the opportunity for some vegetarian Asian food, I went down for the afternoon for a look and to enjoy some Indian dance music. 


Consequential changes are taking place in Australian demographics right now, the aforementioned events this week being clearly representative thereof, and for mine Australia is an infinitely richer a place for it. 

Australia's migrants

The 2011 Census revelaed that 25 per cent of Australians were born overseas and 43 per cent have at least one overseas born parent.

I believe it to be a fair assumption that today those numbers are rapidly gravitating towards 30 per cent and 50 per cent respectively. 

SBS provided this useful interactive tool which sources data from the 2011 Census to show where Australia's migrants were born. 

It is noteworthy that some of these trends will evidently have become far more pronounced in the four years which have elapsed since the last full Census.

Naturally in many suburbs there are a proliferation of Brits and Kiwis, but when looking at the below capital city maps in particular with these prominent two nationalities stripped out, some very interesting patterns emerge.

Brisbane, for example, is very popular with South African migrants who enjoy the familiar warm climate and the relative availability of space.

There are pockets of Brisbane which are both popular and populated with Chinese-born migrants, such as Toowong, Indooroopilly and Taringa in the inner western corridor, and Sunnybank to the south.

However, as you can see from the great swathe of green below, there are also many suburbs which are favoured by Indian migrants, which accounts for why an India Day festival could comfortably attract 15,000 visitors this weekend without any hoopla. 


Sydney is also considered extremely favourable by Chinese migrants.

In Hurstville, for example, by the time of 2011 Census some 39 per cent of the suburb's population was born in China or Hong Kong, with a further 3 per cent born in Nepal.

In that context, when we see bloggers carping almost daily about the prominence of so-termed "foreign buyers" of property in some of these suburbs...well, to be perfectly blunt it would be much more unusual if the predominant enthicity of buyers was that of white Australians. 

One much-neglected Sydney suburb within which I have bought property for clients over the last year or two is Campsie in the Canterbury-Bankstown region, located only a dozen kilometres or so from the Central Business District of Sydney on a direct train link. 

By the time of the 2011 Census some 22 per cent of the population of Campsie was born in China, 5 per cent was born in Korea, and 4 per cent in India, whilst there are also a geat many Lebanese and Vietnamese migrant residents.

Less than a third of the suburb's population was born in Australia, and so of course so-called "foreign buyers" now dominate that particular property market too. 

These new Asian migrants are rationally flocking to a well-located suburb which Australian residents have long ignored or in many cases considered beneath them.

As a comparatively cheap suburb which until recently has been in need of gentrification, it would not surprise me at all to see Campsie rocket to the very top of Australia's capital growth charts.

Note that dwelling prices in such districts are not growing only because of foreign capital, but as much because suburbs such as Campsie had become perceived as depressed, cheap, neglected and unsightly, and only now are being revitalised by the new settlers. 



Many of the suburbs favoured by Chinese migrants to Melbourne are located to the east of the city. 

These include Box Hill (where by the time of the Census 24 per cent of the suburb's population was born in China or Hong Kong, and a further 4 per cent in India), Box Hill North, Mount Waverley, Glen Waverley, Burwood, Burwood East, Balwyn, Balwyn North, and a whole raft of others as you can identify below.


This trend is only set to accelerate, with permanent settlers over the past 15 years overwhelmingly hailing from Asia, while the comparatively recent explosion in the number of Chinese short-term visitors suggests that this trend is likely only in its infancy.

The latest data shows that the numbers of permanent settlers from Europe, New Zealand, America and Africa are dialling back, but Asian settlers are increasing once again.



ATO initiates foreign buyer taskforce

Sadly with high rates of Asian immigration barely a work day now passes without bloggers, chat forums and media websites making reference to "illegal" sales of property to "foreigners", with Chinese buyers in particular regularly singled out for blame.

All too rarely do real estate commentators - or for that matter market participants - distinguish between foreign-born residents, residents of Asian heritage, residents with capital which was earned or borrowed from overseas, or people who just generally 'look a bit foreign'. 

Unfortunately the real or perceived lack of transparency in property markets has led to more unfounded accusations than Beau Geste

Pundits love to point the finger or infer "criminal" activity but never seem to produce any tangible evidence of the cited "illegal purchases" - after all, if illegal practices have been as widespread as is regularly claimed, surely it wouldn't be that hard to produce a fair number of examples?

To be clear, there is no question to my mind that foreign capital has impacted capital city property prices at the margin, and there must undoubtedly have been some instances of illegal purchases (some perhaps unwittingly so), but the number of illegal transactions has in my view surely been overplayed.

To re-cap, non-residents are typically approved to buy new property (or sometimes to develop established property where this results in an addition to the dwelling stock), and thus a surge of Chinese capital in particular in this market has helped to fuel Australia's greatest ever apartment construction boom.

This dynamic has helped to push rental growth down to is slowest level since 1995, and in time will keep downward pressure on dwelling prices too. 



Part of the muddle, of course, is that - just in the way that I still refer to myself as a "Pom" more than a decade-and-a-half after I first set foot in Australia - Australian citizens of Chinese heritage are routinely labelled "Chinese buyers" regardless of residency status. 

Heck, what am I even saying? Australian residents of Asian heritage from Hong Kong, Taiwan, Vietnam, Korea, Malaysia, Singapore, Indonesia, the Phillipines, Taiwan and goodness knows where else are also nonchalantly categorised as "Chinese buyers" by auction attendees and some industry operators too!

ATO compliance strategies

The Australian Taxation Office (ATO) is presently designing and implementing new compliance strategies to improve transparency in the area of foreign purchases of property, having taken over the mantle from the under-resourced Foreign Investment Review Board (FIRB) in the month of May this year. 

Indeed ATO Commissioners have called on me a couple of times to ask for my "market perspective" and for my "advice on their approach to the taskforce". We've had some very interesting and enlightening discussions, and I expect we'll have more worthwhile conversations going forward too.

The strategies to be deployed by the ATO will include closer stakeholder engagement (with advisors, industry agents, associations etc.), improved data matching, support for voluntary compliance with concessional treatment for foreign investors who come forward before 1 December 2015, a broad investigation strategy (with over 400 current cases), and support for policy and law reform.

Transparency

Since you're reading my personal blog page, my own view is that the most straightforward way to improve transparency in this area - thereby hopefully putting a stop to the often borderline hysterical daily blogs and media articles on the subject - would simply be to implement a "no passport/no sale" rule of law.

After all it is already "standard ops" where I live in Queensland for solicitors to require identification for real estate transactions anyway, and these days even mobile phone companies can require 100 points of ID to buy a phone plan!

The ATO's alternative view could well prove to be that this procedural step may not fly due to a potential real estate industry backlash against additional administrative hurdles.

I expect it will likely transpire that the chosen path foward comprises the implementation of a national property register together with collaborative cross-checking of data procedures between agencies.

Analytical review

Upon being asked by the ATO how the taskforce should best proceed in my opinion, I advised that if I was taking a materiality-based approach I'd be starting with tracking data and transactions in inner Sydney, inner Melbourne and inner Brisbane, in that order, as implied by the 2011 Census data cited above.

The ATO Commissioners and taskforce will advisedly undertake analytical procedures in order to identify outlying market trends. 

My contention is that any ATO research carried out in this area will confirm that while foreign buyers obviously account for a material proportion of new property purchases, the pre-eminent driver of dwelling price growth in Sydney and Melbourne (and let's face it, there has been no real dwelling price growth elsewhere to speak of for more than five years now) is domestic buyers.

My chart packs, which cover housing finance written domestically only, lead me to precisely the same conclusion.

Take a look below, for example, at the unprecedented surge in domestic investors in New South Wales. It is clearly not "foreign buyers" that are the dominant driving force of the market, rather it is domestic investors...and in fact lately it has become domestic Sydney homebuyers too!


Incidentally, the above chart should also extinguish farcical inferences that property buyers agents in Australia might be seeking to profit via engaging with illegal foreign buyers.

Despite predictions to the contrary, Australia is in the midst of the biggest property investment boom in its history - only a numbskull would be trying to dodge the law by soliciting for illegal buyers. There are after all endless numbers of Australian investors entering the market right here at home.

The wrap

My belief is that following the conclusion of its taskforce the ATO and its Commissioners will roll out and then implement robust new rules and penalties as effective deterrents to illegal property purchases over time.

The hearsay and innuendo may or may not continue, but either way looking forward Australia's permanent migrant population will overwhelmingy originate from Asia so we had better get used to seeing more Asian faces at auctions, like it or not.

I would also be willing to take a bet that the ATO findings will show that comparatively speaking only a tiny fraction of illegal sales have taken place.