REALTY - INVASION BY 'FOREIGNERS' PUSHES UP UNREAL PRICES
By Ruma Dubey
The Australians do not have to just contend with buying all goods Made in China, like the rest of the world but it looks like China is busy buying up all assets Australian. And they have woken up only now, smelling the coffee, which seems to be have a pungent, ‘Chinese’ odor. You talk to any Australian today about Chinese and realty in the same breath, in all likelihood, you could get punched on the nose!
And they being upset is not unreasonable. As per the the latest data published by the Australian Govt, Chinese investors spent almost 6 billion Australian dollars (US$5.4 billion) on real estate during the 12-month period ending in June 2013. An HSBC report published in February named Australia as China’s No. 1 destination for overseas property. And to follow all this up, Credit Suisse released a report that forecasts a flood of Chinese investment over the next seven years, to the tune of, hold your breath, A$44 billion!
One could shrug this off saying that the world is flat and we live in a global world. Well, if FDI from China into Australia was wide spread, it would not been a cause for alarm but what is scary is that the Australian government found out that Chinese money accounts for 12% of the purchases of newly built residences there. The Chinese are buying almost everything new coming up in Sydney and Melbourne; in fact there are some blocks of apartment in these cities which are owned 100% by Chinese nationals! To think that the scenario will change from having a ‘Little China’ in Australia to ‘Little Australia’ in Australia itself!
The Australians are miffed – not because they have Chinese neighbours but more because this massive incursion by the Chinese has pushed up their realty price to unreasonable levels. These Chinese are buying property merely as ‘investments’ most not intending to stay or even rent it out. So new properties, which are apartments ( Australian Govt allows FDI only in new constructions) get sold the moment they are put on the block and this is not only hiking up prices to unnatural levels but most apartments sit empty too. Sounds familiar for us Indians?
There is a similar situation in UK too, only here the invasion into their realty is by Russian oligarchs, who are snapping up London’s most expensive properties. In UK, four out of 10 properties on the market, above 1 million pounds are being picked up by Russians. Some 264 such properties in London alone were bought up by Russians. And, ahem, Indians are number two property buyers, after the Russians! Indians spent £449million on 221 properties in London alone. There too these ‘foreigners’ who are essentially speculators have pushed up realty prices to unreasonable heights, not all in synch with the fledgling economy. Foreigners purchased 49% of property worth more than £1million in central London and they are the ones who alone acontributed largely to the 9% rise in housing prices in 2013. The prices have gone up so much so that Londoners themselves are being forced to look for homes in far away suburbs as buying a home in London has become an unattainable dream.
The real estate firms Savills found that 37% of people purchasing prime real estate in central London would not make this purchase their primary home but rather another stop in the international fleet of houses that include stops like New York, Hong Kong, and Moscow. This means London becomes unaffordable for domestic buyers and that too because foreigners buy property to stay just for a weekend or for the summer, without really contributing much to the local economy.
Well, this sounds very very familiar with our Indian story. The realty market is down in the dumps for a couple of years now; people are not buying homes yet prices refuse to come down and builders are announcing new projects, at higher prices! We in India do not have foreigners snapping up property like this but NRIs are huge buyers and they alone have ensured that property prices do not come down, driving away Mumbaikars far away into suburbs, which too have become unaffordable. The money from NRIs is huge and so is their holding power. They are essentially investors in most new projects; meaning they may or may not stay in the homes they buy.
UK might have Russians (and super rich Indians) and Australia has Chinese but Indian property markets have most certainly been invaded by NRIs, more so when the rupee slid to new lows last year.
Thus what could happen if we allow foreigners to directly buy property in India? It would simply mean the middle class and poor Indians would have to look for another planet to build a home! Hope in this rush to bring in more FDI, the Govt never allows this to come in as we could face what the other countries are facing. And we simply cannot afford that.
New projects are being launched; your daily newspapers has more ads for realty than for consumer products now. But what we have to see if these projects are more to feed the appetite of the NRIs rather than meet the need of the domestic buyer. It is imperative that Mumbai and other metro cities realty reflects the true demand and supply of domestic as well as foreign buyers or else, we will have a market which is dominated by the rich, who do not even live in these flats, creating cities of vacant unaffordable flats while majority of the population lives in rental homes.