27 Feb Labor policy opens the door to foreign investment – Doug Driscoll
With the federal election heading our way in a matter of months and, likely to lead to a change of government, Labors negative gearing policies may not actually boost the volume of first home buyers in the market. Instead they might lead to a possible influx of overseas investors. This is the view of Doug Driscoll from Starr Partners. He explains.
Kevin: Well, with the federal election heading our way in a matter of months, likely to lead to a change of government, Labors negative gearing policies may not actually boost the volume of first home buyers in the market. But instead lead to a possible influx of overseas investors. This is the view of Doug Driscoll who is the CEO of Starr Partners.
Kevin: He joins me, Doug, thanks very much for your time.
Doug: Alright, Kevin. How are you?
Kevin: Yeah, got an interesting view that you’ve taken on this. Because obviously the labor side of politics are looking to try and soften the market for first home buyers but you’re saying it’s probably not gonna do that.
Doug: I think certainly the numbers of first home buyers have increased over the last, probably year, maybe even 18 months. And that’s a direct consequence, of course, of APRA’s macro prudential measures. Where they’ve limited investor activity. My concern around the proposals from the labour is that they could end up inadvertently shooting themselves in the foot and welcoming more foreign investments.
Doug: Certainly in a softer market.
Kevin: Yeah, well of course, they’re riding on the back of some pretty emotional views that they’ve put out about foreign buyers. And we hear these stories all the time about foreign buyers bidding at auction, driving prices up. I know that’s not your standpoint, but just explain to me how you feel about that.
Doug: Well, you have to be very careful and I think a lot of people are actually scared to express their views on this subject. But for me, it’s the elephant in the room, now what I will do first and foremost is clarify my position. I don’t see this as xenophobic, not being an Australian myself, I certainly can’t be accused of jingoism. This is basically about non residents who reside permanently in a different country owning Australian property.
Doug: It just so happens that the vast majority of these overseas investors are from China. But it doesn’t really matter where they’re from, they can come from China, India, the UK, from the moon for all I care. This is really about protecting Australian residents and Australian citizens interest. The other thing I need to clarify and be very clear on is a lot of people, they get muddled in terms of what actually an overseas buyer is.
Doug: Again, overseas buyer is somebody that resides in another country and they are not to be confused with someone who is a potential first or second generation Australian who is of Chinese descent. So the typical person you would see competing in auction on a Saturday as you alluded to is not the kind of people I’m talking about. Because they live, reside, and probably have done for a couple of generations in Australia, they are Australians. They just so happen to be of Chinese descent.
Doug: Or Indian descent or British descent or wherever it may be from. I’m talking about people who live overseas and are coming into Australia, sensing a bargain, and acquiring property. And for me, this isn’t a gut feel, numbers don’t lie. The appetite is there, it’s very real. It’s bigger and greater than ever before, not my words, if you speak to again a lot of people who are on that side of water. They’ll tell you that even people like Juwai, Juwai is the largest Chinese property portal.
Doug: They’ve said in a recent study earlier this year, in fact, that the appetite and hunger is greater than ever. And they expect Chinese citizens to be buying Australian property in unprecedented numbers this year.
Kevin: Yeah, well Michael Yang earlier in our show from G Fang said exactly the same thing.
Doug: Well and look, all we need to do to put some context around this is actually look at the numbers. As I said, numbers for me don’t lie. This isn’t facts, this isn’t feeling, this isn’t fiction … This is fact, it isn’t feeling or fiction. So if you look at some of the numbers around foreign investment at the moment, it’s difficult to know who to believe here. But the reliable sources are the large organisations.
Doug: ANZ’s recent study, they’ve said that foreign buyers now own an excess of 400,000 Australian homes. They also said in that same study they’ve estimated that foreign investors purchase between 40 and 50,000 Australian dwellings every year. Foreign buyers currently are acquiring 25% of all newly constructed dwellings in Australia. And according to Knight Frank’s market Insight study of only last week, Chinese developers acquire 1/3rd of all development sites in Australia in 2018.
Doug: And that figure is expected to be even higher this year. So those numbers are undeniable and my worry I guess is that with a large population, whether it be China and India, their middle classes are burgeoning. and if there is a genuine appetite, we’ll be dwarfed. We’re minnow by comparison.
Doug: In fact, we’re not even a minnow, we’re a tadpole by comparison and if those numbers continue on that trajectory, how long until overseas buyers own a million plus Australia properties? And the issue then becomes around Australian residents or citizens then obviously not being able to get into the market themselves. There’s further ramifications, a lot of in particular Chinese buyers, tend to leave these properties vacant as well.
Doug: So that has impact on the rental markets, so it’s a real difficult balancing act because as I said you can’t turn the sign on the door to close a business. Because I understand that obviously we do need our trading partners but there’s gotta be a line in the sand. And I think that ultimately, this stance from my viewpoint comes out of protecting Australian residents interests.
Kevin: Yeah, well of course, we are hearing already from operations like Juwai, you’ve mentioned, and also G Fang that it is very desirable for foreign investors to buy into Australia now. And anything that we do to soften the market is going to make it even more attractive for them.
Doug: And there lies the issue, that’s why, politics is a very difficult game clearly. I mean we’ll sit on the sidelines and we chastise or lambast these politicians but that is not a job that I would want. They’ve got a very difficult balancing act ahead of them because obviously they need to look at the here and now, they need to look at the economy, they need to make sure there’s money flushing into that economy and flowing around.
Doug: And obviously if there’s a short fall with owner occupiers or investors, properties still need to sell. But it’s about having some foresight and I think that insight provides that foresight. And you’ve gotta look, well if we continue this trajectory, what does happen in two years time? Five years time? Ten years time?
Doug: So sometimes it’s worth putting up with some short term pain for some long term gain in my opinion.
Kevin: So what’s your view then, Doug, about whether or not we can or whether we even should make property more affordable?
Doug: Well I think property is becoming more affordable, there’s no question bout that. Obviously that intervention by Apra certainly served its purpose, the market was far too hot. Certainly across places like Sydney and Melbourne and credit where credit is due, it did have the desired impact and effect. But market’s are cyclical, they go up and they come down. You and I, in our lifetimes, we’ve seen it numerous times.
Doug: And I think we just gotta maintain perspective and we’ve gotta realise that obviously we’ve just encountered a once in a lifetime, once in a generational market. So it was always bound to come back. The key here is maintaining that balance and maintaining the best interests of the Australian population as far as I’m concerned.
Doug: And obviously selling off the family silver, I don’t believe is maintaining the best interest of the Australian population quite frankly. I mean you would have heard the common term that’s used in popular culture around Australia being the 51st state of the US. Well, I certainly think in economic terms, it’s almost become the 24th provence of China.
Doug: And I think we’ve gotta be really, really careful of that. But maintain that all important balancing act of continuing trade with as I said, our biggest partners overseas.
Kevin: Well said, Doug. Thank you very much for your time. Doug Driscoll, CEO for Starr Partners. Thanks for your time, Doug.
Doug: My pleasure, thanks Kevin.