Our Very Own Chinese House of Cards

Chinese investors pumping billions of dodgy cash into Australian property

Have you noticed that many seemingly good homes seem to be bought by Chinese purchasers and then simply left empty or pulled down? It might seem fairly odd. Why would they do that? There is actually logic to this.

You see, non residents are not permitted to buy existing houses but they are permitted to buy new ones. This is one of the reasons for the explosion in apartment developments, as they sell them to foreign investors, who have no other way to invest in Australian real estate. Another solution to overseas buyers though is to buy an existing property and demolish it to build a new one. In the meantime, they are not permitted to live in it or rent it out. Thus these seemingly inexplicable empty properties.

This is fine for now but much of the money being invested in these properties is laundered money out of China (who would have thought?). The article below details the facts and suspicions relating to this sometimes illegal activity. On both the Chinese and Australian fronts, this issue is being addressed (with differing vigor). For the Chinese government, this is contributing to the continuing fall of their currency. In earlier posts, we alerted our readers to the latest action by their government to stem the outflow of their cash reserves by limiting the permitted use of the funds. The actual success of the measure is yet to be evident.

Where this affects our property market is that the capacity for foreign buyers and in particular the Chinese, to bring funds into Australia, has a massive impact on the demand for property. Both supply and demand is currently down but demand still exceeds supply. This can change overnight. Our market is directly related to the flow of funds occurring from China. If this is turned off or even squeezed, we will get a rather brutal lesson in the concept of a House of Cards.