To Get Rich is Glorious: Chinese Fortune Fuels Real Estate Boom Down Under

MARIKA DOBBIN

The Age, Australia
September 19, 2009

NICK Johnstone is a man on a mission. Next week, the Brighton estate agent will fly to Shanghai with the aim of selling 30 of Melbourne's most expensive homes to Chinese buyers.

It will be the first time a Melbourne agency has attended the China International Luxury Property Show, but it is just one example of a phenomenon that has transformed Australia's residential market.

''Australia is the flavour of the month amongst the Chinese investors,'' Mr Johnstone, 41, said yesterday. ''They love property and there's plenty of money over there so they're good clients to have.''

While Chinese buyers have fuelled the top-end real estate revival, they are also courting controversy, with some local house hunters complaining they are being priced out by foreigners who have no intention of living in their new properties.

A few critics go further, arguing Chinese money is now putting upwards pressure on interest rates.

But you will not catch Mr Johnstone of J. P. Dixon complaining. He has made at least 40 per cent of sales this year to the Chinese. Other agents in the east and south-eastern suburbs have reported the same level of demand.

''We've had several buy properties sight unseen, just over the internet and phone.'' Mr Johnstone said. ''A lady from Shanghai, whose son goes to Wesley College, bought four houses in Brighton from us in two months, worth $20 million.

''They buy them to land bank, not to rent them out. The houses just sit vacant because they are after the capital growth.''

The floodgates opened on foreign investment in March when the Federal Government relaxed its rules on property ownership.

The changes made it easier for foreign companies and temporary residents, such as 12-month business visa holders, foreign students, and their parents, to invest.

Last month, Treasurer Wayne Swan announced a further relaxation of Australia's foreign investment screening to ''help boost Australia's growth''.

But the big spend-up is being fuelled by more than just Australian policy change.

Armadale entrepreneur Barry Jan, who runs property shopping tours from China to Australia, said the Communist Party had had an about-face on citizens investing their wealth overseas. ''People are investing now in case they can't get their money out later,'' he said.

Kew property adviser Monique Wakelin said many Chinese had come to see Australian property as a stable hedge against global economic tumult and the potential devaluation of the yuan.

''They are looking for avenues to protect at least part of their wealth, and A-grade Melbourne residential property fits the bill.'' The confluence of events has seen Chinese money inflating prices for top-end homes by at least 10 per cent in a matter of months, according to Boroondara agent James Connell from Marshall White.

''Chinese people have effectively kick-started our economy and underpinned all our housing values in inner Melbourne,'' he said.

Keen to cash in on the boom, Marshall White, J. P. Dixon and other big agencies such as Jellis Craig are hastily establishing connections with offshore accounts, lawyers and businessmen to funnel a stream of buyers into Melbourne.

Also in hot demand are Mandarin-speaking Melbourne real estate agents and property lawyers.

Meanwhile, Australia's largest developers - including Australand, Central Equity, Simonds, Becton - are setting up offices in China and Hong Kong to spruik off-the-plan developments.

And an industry of ''Australian property and migration'' exhibitions has burgeoned in the cities and mining towns, such as Taiyuan, attracting hundreds of people.

Yet all the evidence put forward about the property revolution is so far anecdotal because there is no measure being kept on the amount of investment by temporary residents in residential property.

The Government's March law change abolished mandatory reporting of such acquisitions in a bid to ''enhance flexibility in the market''.

What is certain is that in the past financial year before the change, foreign investment in Australian residential property increased by a third to $20.4 billion from the year before. Victoria attracted 21 per cent of that investment, according to the Foreign Investment Review Board's annual report released last month.

CLOSING THE STABLE DOORS AFTER THE HORSES ARE STOLEN: FED TO REGULATE SUBPRIME LENDING!

Fed passes reforms to combat subprime mortgage crisis

The measures promise to protect borrowers from prepayment penalties and misleading loans.

By Ron Scherer | Staff writer of The Christian Science Monitor

New York - The federal regulatory process to fix some of the worst mortgage abuses is now moving ahead with greater speed.

The Federal Reserve, the nation's central bank, voted to take a wide range of actions that might prevent future malpractice, but will likely do little to help borrowers facing foreclosure. The Fed's main thrust appears aimed at banks who made loans to subprime borrowers, those with less than stellar credit ratings, and those who took out loans without proof of income or other documentation.

"This is a huge step," says Kurt Eggert, a law professor at Chapman University School of Law in Orange, Calif. and a past member of the Federal Reserve's Consumer Advisory Council. "If these steps had been taken five years ago we may not have had the meltdown, or at least it would have said there is a sheriff in town trying to force some reasonable basic rules of good lending."

The Fed's actions, announced on Tuesday, included:

•Giving protection to subprime borrowers from prepayment penalties if they payoff their loans early.

•Requiring lenders to ascertain that borrowers are aware of the need to set aside money for taxes and insurance in their monthly payments.

•Clamping down on so-called no documentation loans, which have been made to the self-employed or other people without a conventional income.

•Setting new standards to determine a borrower's ability to repay a loan.

The Fed's board of governors passed these proposals unanimously on Tuesday. The next phase for these new regulations will be opening them to public comment.

"These sound like reasonable proposals to me," says Lyle Gramley, a former Fed governor, now at Stanford Policy Research in Washington. "Subprime loans are made to those people least able to understand the terms and conditions and they need protection so this is an important step forward."

Few of the measures would have an immediate impact – the Fed has indicated it would start to implement them next year.

However, the new regulations are also taking place after the financial markets have already made changes. Banks have become particularly wary about making mortgage loans to anyone but the best borrowers because of enormous losses. Many of the mortgage brokers who made the most egregious loans are now out of business.

"The market has instilled discipline," says Richard DeKaser, chief economist at National City, a bank holding company in Cleveland.

"Much of this is insuring we don't repeat the problems going forward," he says.

Foreclosures are now at record levels and some 20 percent of subprime loans are now delinquent. And, the numbers may still rise since many of the borrowers took out loans with low "teaser rates" that will readjust upward over the next two years.

However, Mr. DeKaser says some will make the argument that the Fed's new rules may act to stifle innovation. "If I want to lend you money, who should say what the terms are to limit the extension of credit," says DeKaser. "By codifying restrictions there will be more safety in mortgage lending, but potentially limited innovation."

Some members of Congress have been jawboning the Fed to become more active. And, there is legislation pending in both the House and Senate that would make it easier for subprime borrowers to repay loans without penalty.

One of the spillover effects of the mortgage crisis has been a developing credit crunch as banks have become reluctant to lend each other money. Yesterday, in a separate action designed to remedy the situation, the European Central Bank announced it has lent out $500 billion to member banks. After the announcement, international interest rates, known as the London Interbank Offer Rate (LIBOR), fell. Since many short-term loans use LIBOR as a benchmark, this rate reduction will help individuals who carry balances on credit cards, those borrowing money for car loans, and some business loans.

The So-called Mortgage Crisis: Rogue Lenders and Scheming Borrowers Gaming the System

By Bian-lian Huang

Democracy in America is two wolves and a sheep voting on what to have for dinner. For many years in the United States, welfare recipients have voted themselves pay increases at the ballot box. Now the nanny state is at it again. The putative mortgage crisis currently facing the country has many politicians talking about bailing out both rogue lenders and scheming borrowers. We have been reporting for years here at the Fairbank Report that many people have been playing with OPM (other people’s money) when it came to easy mortgage financing.

No income verification. No money down. In fact, why not borrow up to 125% of the value of the property? People making minimum wages were buying million-dollar homes. Both lenders and borrowers knew what they were doing. They were gaming the system and more significantly getting away with it.

Now the wolves are voting themselves, at the expense of the sheep, a federal bailout. It only goes to show that if bad behaviour occurs in a large enough number, there won't be any consequences. What about the people who forwent vacations and fancy restaurant meals in order to scrimp and save for the 20% down payment? They are, in a phrase, royally screwed!

I oppose any government – federal or state – bailout of this mortgage debacle. I even object to the Bush Administration’s proposal, currently being circulated among lenders, to artificially freeze mortgage rates at an “affordable level.”

These rogue lenders and scheming borrowers knew precisely what they were getting into when they executed these exotic loans. Now a few crocodile tears down their fat cheeks are leading the weak-knee politicians to propose a taxpayer bailout and other counter-market measures. There must be severe consequences to bad behaviour, or else, there won’t be anything but bad behaviour.