Australians shouldn't fear Chinese buyers, but should fear the developers marketing to them

A new crisis-scandal-outrage has emerged in real estate. It’s the issue of Chinese investors buying Australian real estate.

This has brought out all the usual hysteria and misinformation. They’re taking over Australia; we’re being invaded by stealth; they’re squeezing out first-home buyers; they’re creating a bubble; etc, etc.

We have wannabe buyers being outbid at auction and complaining because the successful buyers were Asian-looking and therefore, according to the aggrieved parties, Chinese investors. They could be third-generation Australians, for all they know.

It’s reminiscent of the eighties, when high levels of Japanese investment allowed newspapers to whip up a xenophobic frenzy.

Louis Christopher, managing director of SQM Research, this week described reaction to Chinese investment in similar terms. “This current fear that the Chinese might buy all our property is nothing but xenophobia,” he said.

There’s only one aspect of this that’s in any way outrageous – and that is the way Australian developers and their marketers are peddling bad real estate at inflated prices to distant investors.

There’s nothing new in this. Developers have always targeted distant investors to, firstly, get rid of unsold dwellings for which there are no genuine local buyers – and, secondly, to go a step further and create new stock specifically to sell to distant investors, notwithstanding the local over-supply or depressed market.

In the past, the victims have been found interstate, out west or in New Zealand. Now Asia is being targeted, especially China.

Marketing teams are taking roadshows to China and using deception to induce investors there to buy highrise apartments or house and land packages in poorly-performing markets.

There’s no crisis here, but one might emerge if Australian investors follow the advice that’s starting to emerge – namely, that they should be buying where the Chinese are buying.

I would suggest Australian buyers do the opposite. Avoid like the plague any markets being pitched to the Chinese. They’re being sold product in oversupplied markets, usually at prices above true market value. They’re not markets a sensible investor would want to be in.

The Gold Coast, often the birthplace of Australia’s worst property scams, is emitting propaganda along these lines: Australians should be buying Gold Coast high-rise because the Chinese are, and we all know how much research the Chinese do!

This is as bad as investment advice gets. Many foreign investors are not undertaking independent research – they’re being fed lies and propaganda disguised as research.

It’s a situation that’s adding to the already-serious glut of apartments in the inner-city areas of Melbourne. Current vacancy rates, according to SQM Research, are 7% for the CBD, 7.2% for Docklands and 7.8% for Southbank, but they’re continuing to build more and more apartments in these areas. This is happening because developers are able to flog them to Chinese and other Asian buyers.

We are likely to see a similar scenario in inner-city Sydney for the same reasons.

A tremendous shake-out is looming in some of these markets, although it may take a few years to materialise.