With Chinese purchases of overseas real estate putting upward pressure on many global real estate markets, it may be a matter of time before the US, Canada and Australia follow markets such as Hong Kong and Singapore in taxing purchases of housing by overseas investors.
Two stories in the news this week indicated dramatic upswings in Chinese purchases of overseas real estate with a report by CBRE forecasting that mainland individuals will put up to 1.1 trillion yuan ($179 billion) into global real estate markets, and the US National Association of Realtors reporting that Chinese investors have more than doubled their share of foreign purchases of US housing in the past six years.
Since the Chinese government began restricting purchases of real estate on the mainland in 2010, there has been a surge of outbound investment from China into other real estate markets. The impact of these capital outflows was felt first in the regional markets of Hong Kong and Singapore, where thanks in part to this investment surge, with average housing prices in Hong Kong having doubled in the last four years and home prices in Singapore having risen more than 60 percent since 2009.
The result of these market swings in Hong Kong and Singapore has been duties on purchases of local real estate by foreign investors. Since October last year in Hong Kong, buyers who aren’t permanent residents must pay a tax of 15 percent for any residential property purchase, and in Singapore as similar 15 percent duty has been in place since January this year – having been raised from earlier tax rates of 5 percent and 10 percent. These measure to cool foreign demand have been put in place to protect the ability of local residents to afford housing near where they live.
In Australia, which has been a popular real estate buying location for Chinese for many years, the Wall Street Journal recently found that “wealthy Chinese are now among the biggest buyers of real estate in Australia, spending tens of millions of dollars on properties ranging from waterfront mansions with views across Sydney Harbour to more modest homes in the suburbs.”
The impact of these Chinese housing purchases has had such a profound impact on Australia’s markets that economists at Citigroup think they’ve stumbled across a previously unknown connection between Chinese migration to Australia and property price growth. While retooling the computer model that churns out the bank’s predictions for house prices, they found shifts in Chinese migration consistently led moves in property prices by three years.
While the Australian economy may be larger than Hong Kong or Singapore, the housing markets of key cities such as Sydney and Melbourne can still clearly be swayed by Chinese investment. And with Chinese investors more likely to be seen as an unwelcome influence in the market in far away Australia than they might be in more closely related markets such as Hong Kong and Singapore, will local governments in Australia follow the lead of Hong Kong and Singapore by placing duties on home buying by non-residents?
In the case of the US, there is no doubt a great deal of housing supply which is still crying out for buyers, and we are not likely to see duties put in place on purchases of homes in Detroit any time soon.
However, most of the Chinese interest in US real estate seems not be in Detroit, or even Miami, but in already pricey markets such as San Francisco, New York and Boston.
In Boston, several of the city’s luxury condominium buildings report that at least 24 percent of recent buyers have been international clients, many of them paying in cash. At one Boston project, where condo prices range from $975,000 to $5 million, foreign investors have purchased about 35 percent of the 109 units, with the biggest share of buyers coming from Asia.
If this trend continues, will US communities be force to regulate sales of homes by non-residents to keep their cities affordable for people who live and work there? Such measures may be harder to enact across the larger scale of the US economy, but may be on the way for already tight markets in major urban centres.