Real and imagined - the overstated domino fear of top end Toorak Chinese buyers

There have been two thought provoking commentaries from prestige Melbourne buyers' agents this week on the issue of prestige home sale to buyers of Chinese descent.

There was some silly coverage on the front page AFR on Monday. Quite inflammatory and mostly unhelpful as the AFR didn't address the easy way of solving the concern, that is 100 point required residential identification details within all contracts. 

The more insightful perspective commentary has been published today on Property Observer from Mal James.

Under the online AFR headline, Foreigners illegally buy trophy homes in Sydney and Melbourne, or the printed version, Agents cash in on "illegal" foreign buyers, the high profile buyers’ agent David Morrell claimed foreign investment in Melbourne residential real estate was "rampant", particularly from mainland China with "real large scale flaunting of the current laws".

He said the lack of "cheques (sic) or balances was undermining and damaging the existing residential real estate market".

Particularly in the $10 million top end and in the $1.5 million to $3.5 million inner city Melbourne marketplace, said David Morrell.

But unfortunately he was very vague in actually assisting the parliamentary committee investigating foreign ownership with any documented examples.

He suggested there had been "many" transactions in the top end marketplace, in particular where a property has been on the market for 12 months and suddenly the Chinese national has purchased the property for a 20% premium to the relevant marketplace and local buyers.

"This of course causes a domino effect in the market where other vendors believe there properties are worth more and our prices local buyers."

His submission went onto say: "Clearly while there’s a law there’s no requirement in any contract that requires proof of residency to the person signing a document, we have seen on many occasions some distant relation actually sign a document that clearly has neither the ability or knowledge of what they’re actually doing.

"To give you some scale of the problem at a recent Toorak auction where the reserve was exceed by 30%, there were three Chinese nationals competing, neither spoke English or understood the process and literally just kept their hands in the air.

"This outrageousness is not only contained to an isolated incident," though his submission stopped at just this one unidentified example.

Meanwhile buyers agent Mal James wrote it was not just actual bidding that was "creating the near frenzied bidding response that we are seeing out there right now".

"Even when no Chinese Nationals are bidding, it’s the fear of Chinese nationals bidding that is also pushing prices up," he blogged.

"Ask any agent on an inner east home coming to auction and they will tell you we have some 'Chinese interest' – it is something firmly implanted in many agents’ “buyer scripts”.

"In other words, buyers not only bid as they do against Chinese national bidders but also on the fear that Chinese nationals may bid."

James went onto note that in his last 10 purchases he had been directly involved in (Kew, Camberwell, East Melbourne, Elwood, Camberwell, Glen Iris, Camberwell, Kew, Camberwell and Kew) that Chinese Nationals were the direct underbidder on five. They were used in the selling agents negotiating scripts twice. There was no Chinese bidding or no mention of Chinese bidders by agents on the other three.

James concluded by noting that Chinese nationals are also affected by the bidding or fear the bidding of other Chinese nationals.

The committee chair Kelly O'Dwyer represents Higgins, located in Melbourne's south-eastern suburbs.

It covers an area of approximately 40 sq km from Hughesdale in the south-east, South Yarra and Toorak in the north-west, Windsor in the south-west and Ashburton and Glen Iris in the east. The main suburbs include Armadale, Ashburton, Kooyong, Malvern, Malvern East, Prahran and Toorak along with parts of Carnegie, Glen Iris, Hughesdale, Murrumbeena, South Yarra and Windsor.

Getting up the 100 point identification initiative will require O'Dwyer to convince all the states and territories to adopt a uniform contract requirement which could coincide with the roll out of e-conveyancing which should allow greater transparency.

Her committee ought also introduce a foreign buyers'  fee to assist in the compilation of better data on the occurrence, so that the authorities can monitor purchases and exit sales to ensure greater compliance, possibly even if the purchasing is via family members and companies.

Unfortunately until then we are left with mostly anecdotal snippets that don't always greatly assist our understanding amid the confusion between rightful local buyers of Chinese descent and those directly from mainland China who don't have any ownership entitlement.

Kelly O'Dwyer will deliver her findings by October 14.