A new finding by Australias money laundering watchdog, the Australian Transaction Reports and Analysis Centre (AUSTRAC), claims that there were $1 billion in suspicious transactions between China and Australia in the real estate and property market last year.
The release of these official findings is a wake-up call. With home prices at all-time highs, it has been difficult for many Australians to enter the market. This leaves many to wonder, how much have overseas investors impacted the market?
Whilst before the AUSTRAC report it was already known that Chinese investors were finding a way around foreign investment rules, until now the numbers were largely speculative. This is partially because Australian law only requires financial institutions to report suspicious transactions.
The Financial Action Task Force (FATF), an inter-governmental body operating out of Paris, published a 2015 report on the large amounts of cash being laundered from China. At that time, the FATF called out Australia for not including real estate agents, solicitors, and accountants in its suspicious reporting requirements under the countrys anti-money laundering regulations. This has made it difficult to ascertain the true depth of the money laundering.
AUSTRAC found a total of $3.36 billion worth of transactions between 2015 and 2016 in thousands of what are known as suspect matter reports, approximately $1 billion of which was poured into the property market. What is driving Chinese investors to flood money into Australia, beyond what they are legally permitted to do?
Andrew Su from the firm, Compass Global Markets, points to speculation that the renminbi will devalue. This is a huge concern for the growing ranks of the newly wealthy in China. He says, a lot of people believe it will depreciate about 30% over the next few years. In order to safeguard their wealth, they are finding safe havens for their cash.
Australia, which has looser regulations than other major economies and which has a strong real estate market, has become a logical target.
Foreigners, are allowed to purchase new property in Australia, and China allows its citizens to move as much as $66,000 outside of the country each year. In order to purchase property, individual investors would transfer money by making many smaller payments, often through people they already know in the country or through networks of companies.
The scope of the suspicious transactions and the sheer size of the money coming in from China has become a political issue because house prices have already been rising and in many areas there is a housing crisis. Gladys Berejiklian, the premier of NSW, has called her states housing crisis, the biggest issue people have across the state.
This puts even more pressure on watchdogs and the Australian government to do something about the problem. The Australian Taxation Office issued 150 penalty notices for breaches of foreign investment rules last year and Treasurer Scott Morrison approved the sale of $78 million worth of properties in Australia that were foreign owned.
The wave of real estate transactions is simply too large to assume that Chinese investment has not impacted the housing crisis at all. Sydney has recently been ranked as the second most unaffordable city to live in in the world. With the Chinese New Year going on, Australia is expecting an influx of Chinese tourists, about half of which have plans to check out property on their visit, according to a survey by Juwai.com.
Despite these facts, the rising housing and stamp duty costs in Australia are primarily attributed to domestic issues, such as job growth, low interest rates, and urban containment.
While AUSTRAC will continue its work, reporting on suspicious transfers and trying to bring the facts to light, property owners and borrowers should keep an eye on Australian real estate news, especially if in the market for purchasing or refinancing your mortgage. Buying a home is a huge commitment; the more you know about what is going on, the better financial decisions you can make when it comes to choosing your mortgage.
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