Category Archives: Foreign Investment

MARKET UPDATE 15 NOVEMBER 2013

I’m seeing nothing that convinces me that anything has changed or turned around.  Whenever you see an article telling you differently, please read it all, to the end, where oft lies the truth or a disclaimer!

In my City the Council has foregone $35 million in developer fees to ‘kickstart’ new projects.  If a project can’t stand on its own with those ‘normal’ fees in place and has to rely on the local authority taking a haircut, then the project’s chances of failure are high. I’ll keep an eye on the list of projects that have miraculously ‘come on’ during this amnesty period to see how they fare.  A couple of phone calls and I discovered that many of the projects were going to go ahead anyway, and that the ‘discount’ on local government fees was just a bonus.  Government interference in free enterprise – it never works.

So everything is going UP is it?  Almost every real estate article you read says so so it must BE SO!  No.

Big sale of a site in Southport for 3 million dollars!  Wow!  Whoop-de-doo!  How about the poor schmuck who got his timing wrong when he paid 5 and a half million dollars for it at the very peak of the craziness in early 2007. Add to the obvious loss of 2.5 million dollars the holding costs over nearly 7 years and I wouldn’t be surprised if he watched double that go down the toilet.

Of course there’s always going to be the “odd” sale that surprises everyone. I know that.  But they are rare and there’s always some quirky reason why someone has apparently paid too much. I know of one in a capital city where everyone said the buyer was “nuts”.  But was he?  No-one at the time (not even local guru agents) knew that the blocks of land either side were already held by interests associated with him and that securing the third parcel made the whole piece of land so much more valuable as a height restriction went from 4 to 8 or 10 stories as a result.  Smart I’d say.

I lived at a fairly famous Resort on the northern end of the Gold Coast many years ago because I wanted to try the lifestyle.  6 months was enough. I was ‘out of there’… In the early 1990’s vacant blocks of land (non-waterfront) were changing hands for $500,000.00 and all the “wannabes” lapped it up.  It was fine marketing spin at its very best.  So exclusive and so magnificent was the Resort that today, more than 20 years later, dry blocks are selling for….wait for it…..$500,000.00… Oh dear.

Last but not least – commercial. Tenants renegotiating rents down 50% or more and basically holding landlords to ransom is the business of the day.  My local newspaper is full of “Mortgagee In Possession”, “Liquidator”, “Owner wants out”, “Overseas investor quits holdings” and other negative headlined commercial property for sale. These local agents are so duplicitous it makes me sick.  One one page they talk up the market like its the 2004 rocket sled, and yet at the back of the paper they try and suck you into a BARGAIN as a bunch of poor sods are forced to offload their property as drastically discounted prices.

I rest my case and step off my soapbox for this week.

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CHINA CONTINUES TO BUY UP BIG

Chinese buyers are really exerting their influence in my home town.  It’s different to the heady days of the Japanese though.  Many Japanese ‘investors’ were thoroughly lied to and screwed over by Gold Coast ‘sharks’ and paid the price years later when their investments sold for pennies on the dollar.  The Chinese are buying up distressed assets at the higher end of the market at bargain basement, ‘less than replacement’ cost.  Whilst there is still some downside risk, in most cases they are buying well.  That said, and as I’ve opined previously, some just don’t seem to care they are paying well over the asking price or reserve at auction, hence my questioning of their true motives.  There appears now to be two distinct types of Chinese buyers.

Anyway, back to the article below. I wonder if this Chinese buyer has even set eyes onf this penthouse.  Who in their right mind would live in the middle of Surfers Paradise is beyond me.  I am sure that living in the Penthouse would be lovely (I wonder if it and the Sky Homes have a dedicated elevator?) but having the share the foyer with the drunken ferals about to descend on the Gold Coast for the Motor Racing Festival followed by hoardes of out-of-control “Schoolies” would put me off.  Imagine living in that gorgeous penthouse and waking very early Sunday morning for a walk on the beach.  You’d step out to drunks, half-clothed foul-mouthed women, vomit and rubbish all the way to the beach.  No thanks.

And whilst this may not happen any time soon, the old real estate cry of ‘Location, Location,Location’ must always be applied to any purchase.  Most of the gorgeous views to the ocean could vanish over the years as massive high rises are built on the beachfront north and south of the already massive ‘SOUL’ building (another pricing disaster subject to many, many law suits as I write).  If you venture into a beach area with high rises, the ONLY position is absolute beachfront or across the road from a beachfront park that would/should never be sold off for development by local authorities.

Good luck to whoever bought this. Their first early Sunday morning walk may well see it back on the market!

Hilton Penthouse Article

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CHINESE INVESTMENT IN AUSTRALIA

Rick Feneley writes in The Sydney Morning Herald newspaper about offshore investors, particularly the Chinese.  Search on “Forget the farm, we’re selling the city” if you wish to read the article in full.

Things I’ve heard first hand over the last few years, and “Chinese Whispers” from elsewhere, paint an unhealthy picture of the Chinese Government’s plans for places like Australia.

The Chinese, world’s factory, hard workers and smart operators, bless them. are still controlled by a centralised communist government.  We can’t really believe everything Chinese leaders tell us, nor their statistics, or anything else for that matter, as they will say and do anything they please as they have no accountability.  The level of corruption within their ranks is legendary.

All that aside, they have designs on Australia.  their purchases of farm land continue unabated.  if they can;t buy it directly, they buy it using “other means” if you get my drift – any tactic to get around our pretty pathetic foreign investment laws.

I’ve long-held that one should analyse the residential sales in Sydney and Melbourne in particular and to a lesser extent Canberra, to see exactly who is buying up and forcing prices up in certain sectors.  I think you’ll find that individuals with names like Yuen, Chen, Wang, Chu etc are predominant.  if properties are bought by Trusts then one should have a bit of a dig to see where the trail ultimately ends. I’ve heard that phenomenal amounts of money are flowing out of China, mainly through Hong Kong to fund these purchases.

How about this for something to think about?  the Chinese Government, through intermediaries, given naturalised Chinese Australians non-recourse but secret-handshake “loans” to buy property in Australia.  The people who “sign up” for this kind of nonsense “know” that the Chinese Government ultimately own the property even though their name is on the Title, but, as long as they “play the game” they can live there, rent free, (or maybe not – who would know) pay the rates and so on, for as long as it suits the Chinese Government’s purposes.

Rick Feneley writes that 16 percent of New South Wales new housing is being snapped up by Chinese buyers.  what percentage of the population of New South Wales do Chinese represent and why this sudden surge in activity?  Perhaps because the shine has gone off the mining and farm sectors so the massive piles of money have to go somewhere? Maybe?  He further writes that real estate has indeed overtaken mining and the biggest category for foreign investment approvals with real estate purchases in 2011-2012 accounting for 35% of approvals, or $59.1 billion.  I don;t know about you, but this rings alarm bells, but, as we know, nothing will be done, and our kids and grand-kids will be speaking Chinese as a first language and have nothing but Chinese landlords if we keep this rate of acquisition up.  I know, I know, it sounds alarmist but, pooh pooh this proposition at your peril…

In the same article, a statement by a Mr Bright, founder of EPS Property Search is of concern – “Too many of these foreign buyers are paying over the odds. Even if I wanted this business, I couldn’t put my hand on my heart and tell them they were paying a fair price.”

This aligns with what I’ve been saying for years.  Foreign investors, especially the rapacious Chinese, don;t care if they pay 20 or 30 percent too much – it gets their money OUT of China and into what they see as a stable and OK country.  Many Chinese, at all levels, don’t trust their holdings of US dollars (fair comment there given the US’s debt and current issues!) and rather than see those holdings devalue to perhaps NIL, they seek to shift them to Australia and are buying anything and everything they can and paying anything over the odds to get their hands on prime real estate.  That’s why the prices are “popping” in Sydney, Melbourne and Canberra – and for NO OTHER REASON.

NAB Chief Economist Alan Oster is quoted – “If you’ve got 15 percent of new stock being taken by foreigners, that’s a large stock.  Without them, prices wouldn’t be as strong.”

First home buyers are now being squeezed out of the market and they’ll be “forever renters”.  Guess who’ll be their landlords?

Meriton Group, for instance, has long held that about 70 percent of its sales are to Chinese buyers but also say that they are to Chinese living in Australia. Hmmm – go back to my earlier assertions.  There is something fishy here and the appropriate regulator should be having a really close look at the flow of funds to identify this mass of local Chinese investors with tons of money to buy up Meriton product.

Watch this space.

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