The Chinese should not be our rising FHB price scapegoat urges Shane Oliver

The Chinese should not be our rising FHB price scapegoat urges Shane Oliver
Jonathan ChancellorSeptember 1, 2014

Chinese interest in Sydney seems to be concentrated away from first home buyer suburbs, says Shane Oliver, head of investment strategy and chief economist, AMP Capital.

"Whenever house prices take off and affordability deteriorates, there is a tendency to look for scapegoats," Shane Oliver wrote on the SMSF Adviser website.

"Fingers have been pointed at foreign buyers (from China), SMSFs and, as always, negative gearing.

"However, none explain the relative strength in Australian house prices," he said.

Shane Oliver suggested:

  • Foreign and SMSF buying is no doubt playing a role in some areas but looks to be relatively small overall. 
  • Such simplistic explanations ignore the fact that when interest rates go down, Australians borrow to buy houses and prices go up; and
  • Negative gearing has been around for a long time.

"The fundamental problem is a lack of supply.

"Vacancy rates remain low and there has been a cumulative construction shortfall since 2001 of more than 200,000 dwellings.

"The reality is that until we make it easier for builders and developers to bring dwellings to market – and hopefully decentralise our population in the longer term – the issue of poor affordability will remain," he said.

Oliver's comments along with those of UBS economist Scott Haslem who told the parliamentary inquiry into foreign ownership that FHBs are unlikely to be being 'priced-out' of the market because they buy cheaper, established homes outside the inner city.

The Treasurer Joe Hockey has asked for an inquiry into Australia's foreign investment policy as it applies to residential real estate.

Scott Haslem's submission noted average purchase price by foreign citizens and temporary residents for an established dwelling has trended around $1 million in the last five years.

For new dwellings, it has been a bit below $700,000. 

"FHBs have typically bought established, rather than new, dwellings, and FHBs average purchase price of $328,000k is far below that for foreign purchases.

"This should limit the impact on FHBs. 

"But such an assessment must be judged against the increased FHB demand for new dwellings more recently and the likely greater concentration of foreign demand in inner city Sydney and Melbourne where there must be some quantum of FHB demand facing greater competitive pressures than in the past," he added.

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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