China's US$46b Aussie home blitz swamps crackdown

[SYDNEY] Surging Chinese demand for Australian homes is dwarfing efforts to root out illegal buyers as the government struggles to avert a backlash against unaffordable housing.

Since announcing a crackdown on unlawful home purchases in February, the government has forced only one foreigner to sell up. Chinese already buy almost a quarter of new homes in Sydney and their outlay will more than double to A$60 billion (S$61.8 billion) in the six years to 2020, according to Credit Suisse Group AG.

"Forget the anti-corruption," said Ray Chan, managing director of Sydney-based Henson Properties, which sells homes almost exclusively to Chinese. "A lot of money is coming through." Amid concern that offshore demand is pricing locals out of the market, Treasurer Joe Hockey plans bigger fines and jail time for those flouting restrictions. Yet more than six months after a parliamentary inquiry called for a national register of the citizenship of buyers, the database is still a work in progress - leaving officials with no firm grasp of the scale of overseas purchases.

"Current data on foreign investment in property is inadequate, making policy evaluations very difficult," Kelly O'Dwyer, the lawmaker who chaired the 2014 inquiry, said in an e-mailed reply to questions.

A fresh inquiry into home ownership holds its first public hearing on Friday, just as Treasury warns of a bubble in the Sydney market.

Home values in the nation's biggest city have jumped 40 per cent in three years, while the median house price is now A$900,000, according to CoreLogic Inc. The central bank governor said this month that elements of the Sydney market had gone crazy.

Overseas buyers are largely limited by Australian law to new homes and need approval from the Foreign Investment Review Board. Temporary residents can buy new or existing properties with the board's approval, but must sell them when they leave the country.

Last year's inquiry also recommended existing rules should be better policed. The government suspects many buyers no longer in Australia haven't sold their homes as required.

Many Chinese fund home purchases for their children who've settled in Australia, according to Henson Properties founder Chan, who was born in Shanghai and established the firm in 1984 after emigrating.

"Their wealth is building up so fast in China," Mr Chan said in an interview at his office near Sydney's Chinatown, recalling one client who tried to put an A$800,000 apartment on his credit card. He expects prices to rise for at least another three years.

Joseph Zaja, managing director of Ausin Group, which offers Australian real estate to buyers in China, expects his company's sales to double this year to about 2,500 properties, fetching an average of A$650,000 apiece.

At the current rate of supply, Chinese demand would take out 20 per cent of new homes nationwide in 2020, up from 15 per cent now, Credit Suisse analysts led by Hasan Tevfik in Sydney said in a report last month.

A severe economic downturn in Australia may take the edge off demand, but the key factor is likely to be the strength of the Australian dollar, Mr Tevfik said by phone. "Anything that makes us less attractive compared to Vancouver, San Francisco or Auckland is going to count against us," he said.

Chinese demand may not be enough to underpin the market if Australia's economy worsens, according to Martin North, principal at Digital Finance Analytics in Sydney, which has partnered with JPMorgan Chase & Co to produce mortgage reports for more than 10 years. As Australia enters its 25th year without recession, growth is slowing, firms plan to cut investment by the most on record and wages are stagnant.

From December, the government will charge foreigners an application fee of at least A$5,000 to buy homes, as it seeks to fund stronger enforcement. Those who flout the rules may be forced to sell, be fined as much 25 per cent of the value of the property or face three years in jail.

Australian police on Thursday raided properties in Melbourne as part of an investigation into foreign bribery. The Sydney Morning Herald newspaper said the raids were connected to a probe into alleged money laundering by Malaysian officials, who deliberately overpaid for a Melbourne property development by A$4.75 million and channeled the money back home through bribes.

Mr Hockey has announced just one divestment order - forcing a firm owned by billionaire Hui Ka Yan's Evergrande Real Estate Group Ltd to sell a A$39 million mansion overlooking Sydney harbor.

Authorities are investigating 195 cases.

With the most recent data showing FIRB approved more than 23,000 residential real estate purchases by foreigners in the year ended June 2014, Mr Hockey's crackdown will do little to ease pressure on home prices, said John Warhurst, a political analyst at the Australian National University in Canberra.

"It's more of a symbolic gesture than a really hard policy," he said.

BLOOMBERG