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Strong dollar cools Chinese property investment
Old 2nd November 2009, 01:29 AM   #1
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Default Strong dollar cools Chinese property investment

November 2, 2009

THE 10-pound Pom became an icon of Australia's post-war boom. But these days it takes a lot more foreign currency to get a foothold in the lucky country. Those hoping for a business-owner visa generally need to show wealth equivalent to $1 million or more.

But conditions for foreigners eased in one respect in March, with a legal change that has added a vibrant hue to the property landscape. Now those on temporary visas, such as business owners and foreign students, are allowed to purchase any home to live in, land to build on or new dwellings for investment purposes.

The change has seen Chinese money in particular being poured into blue-ribbon Melbourne real estate, as both a way of safeguarding wealth and advancing hopes of migration.

The trend is the talk of Melbourne's elite suburbs, with not everyone happy about the influx. But the truth is that foreign investment in residential real estate has been on the rise for years. The Foreign Investment Review Board's 2007-2008 annual report, released in August, showed real estate investment from overseas more than doubled to $45.5 billion from $21.4 billion the year before, with Victoria the hot spot.

Traditional investors, such as the those from the United States, Britain and Singapore, were still dominant in terms of dollar value, no doubt helped by the buying power of their currencies that year. China was the fifth most valuable source. But when measured in overall volume, only the British outranked the Chinese in sheer numbers, and both nations were well ahead of the rest. The figures indicate that Chinese investors made a heap of smaller individual purchases rather than investing in larger projects.

It will be no surprise if China, which the IMF boldly predicts will overtake the US economy within eight years, is more strongly represented in this year's report.

Treasurer Wayne Swan turned the foreign investment tap on high pressure when he relaxed the laws in March, resisting the protectionist push that came with the world financial meltdown. Many have viewed the policy move as squarely aimed at Chinese hot money, with its vast stores of US currency.

Beijing has long been concerned about the potential for a US dollar collapse. The Communist Party is now encouraging wealthy citizens and companies to invest capital offshore and buy hard assets, such as gold, silver and real estate.

China is already Australia's largest trading partner, accounting for 17 per cent of total trade. Australia has also become a favoured investment nation, not only because it is commodity rich, but because when the US dollar falls the Australian dollar traditionally rises.

Frank Lee, of The Epoch Times, writes that the Communist Party's campaign of ''zou chu qa'', or ''go global'', has made Australia its major target. ''The Chinese are buying coal, iron ore, various metals, LNG gas, uranium and swathes of residential property in Sydney and Melbourne.''

Property adviser Monique Wakelin says that, after the economic tumult of recent times, some Chinese investors view Australian property as a stable hedge against the realities of earning a middle-class living in China. These realities include fickle treatment of their interests by bureaucracies, uncertain property laws at home and potential for the devaluation of their wealth if the yuan slides further.

''These buyers are essentially 'land banking'. We should bear in mind that for many in China's middle and newly entrepreneurial class, the bulk of their wealth has been earned in just the last five years. Now that they have made it through their first period of uncertainty, they are looking for avenues to protect at least part of their wealth and A-grade Melbourne residential property fits the bill perfectly,'' Ms Wakelin says.

But the Chinese yuan, which is pegged to the US dollar, has hit the skids versus the Australian dollar in recent months. Financial commentator Kris Sayce, from e-letter Money Morning, says that, priced in yuan, Australian property values have risen by 38 per cent this year.

''All those Chinese buyers that were paying 4.5 million yuan for a million-dollar house at the beginning of this year will now have to fork out 6.2 million yuan.''

Armadale businessman Barry Jan, who conducts investment tours to Australia for Chinese customers, has lost half of that part of his business that sells property to foreign students and their parents in the past few months, thanks to the surging dollar.

''A lot of the smaller buyers that were due to fly in for residential [tours] have cancelled. People buying in the higher bracket are also a little bit coy now, but the big players seem to be still well into the market. They are also looking at distressed businesses,'' he said.

So just as the 10-pound Poms did decades ago, the wave of 6-million-yuan Chinese who have been buying up property has ebbed in recent months. Just how much that continues will depend on currency exchange rates and the rising cost of safe passage.
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