Why we believe Australian, UK and USA real estate still has a long way to go before hitting its peak
In 2006, in the early days of starting my real estate development company in Shanghai, I made a trip to Melbourne, Sydney and Brisbane, reconnecting with contacts in the real estate world and seeing what the appetite for Asian investment was on both sides of the equation. Most developers were, of course, interested in fresh capital, but this was new territory and they didn’t have a clue how to begin or deal with this new group of foreign investors.
In order to gain a deeper understanding of the state of play of foreign investments in real estate, I did some research and toured local universities in Australia, speaking with Asian students. When I spoke with these students about where they were living and how they were paying for their university fees and accommodation, 99% of the time, their parents had forked out the entire bill. The importance of education that is deeply ingrained in Asian cultures and the desire to send their kids overseas to be educated created the impetus for the wave of Asian capital that is now spreading across the world and across Australian real estate markets. We were right (and so wrong at the same time) as the volumes continue to grow and will continue to grow, blowing away all predictions we ever had or had made up in our heads.
Back then, it was mainly Asian parents buying tiny apartments near universities for their children to live in whilst studying abroad and it didn’t look like a scalable business or an attractive repeat business investor group, so we shelved those plans. Fast forward to 2015, the trickle that began years ago has turned into a tidal wave, and it is evolving and growing faster than most can keep up with or that we could have ever predicted. Regardless of what might be wrong with the country where the capital is taking flight from, it is easy to see why everyone wants a piece of these markets when you see images like this:
WHAT’S REALLY HAPPENING ?
News stories and the media can be very misleading, you can actually find completely contradicting articles about the state of the real estate market written on the same page of some leading newspapers.
In relation to Australian real estate and Asian capital, the media says, by and large, the two main categories in the market now are: either 1) huge Chinese real estate developers (which are actually state-owned enterprises (SOE’s) masked as publicly listed companies) shopping for large commercial projects, , or 2) private individuals buying single family homes as investments in neighbourhoods or suburbs where someone they know already bought a place or in the higher-tiered neighbourhoods because that’s all they know and TRUST.
Without a doubt, the media is giving the Chinese investors way more credit than due for their involvement in driving Australian real estate prices through the roof recently. The domestic investor market is full of local wealthy retirees, massive real estate funds, superannuation dollars and alike that drive the larger part of the market, and you can not sit with Australian’s for less than a few minutes till the talk begins to trend towards real estate. In reality, the Chinese, are only 20%+- of foreign buyers in Sydney, which in turn, is only a fraction of the % of total buyers in the market. The Domain and holy grail of real estate statistics and information in Australia, says that the Chinese are actually buying just 2% of houses in Australia- here .
Either way you look at it, is still a very small percentage of the entire Asian investor pool who have invested in the Australian real estate market already, but there are more and plenty behind them that would like to do the same thing. It is also projected by the Economist magazine that Southeast Asia is the next growing giant. However, the lack of transparency and instability in many of these countries will continue to push investors abroad. Wealthier sophisticated investors from those markets will also look to Australia, UK, US and other developed real estate markets as a safe place to invest a portion of their capital and to diversify risk. Interestingly enough, many of these Southeast Asian countries do not promote foreign investments and some even ban foreign ownership altogether, the complete opposite of Western nations such as the US where they welcome foreign investors, and even offer green cards to those who invest money into real estate under the EB-5 program.
SO, WHAT’S OUR POINT?
Today, only a tiny percentage of Asian investors have invested in Australian real estate. To date, it is being lead by some of the largest companies in Asia, and the huge volume of investors that fall between single house purchase and purchasing the largest buildings in the country, have not even arrived yet. As a side note, Chinese individuals have been allowed to convert $50,000 into other currencies annually – thought there are ways to skirt the regulation. That is about to change, with the Chinese government is preparing to launch the Qualified Domestic Individual’s Investor program this year, which would allow Chinese citizens (who meet the $160,000 financial assets test) to invest overseas directly. Most investors like to follow, not lead, so now there are leaders to follow, and as more capital is allowed to flow freely out of Asia, the size and volume of investment into Australian real estate will continue to grow, it has only just begun.
International investors also have, at times, wildly different reasons for investing into a market vs a domestic investor. Some of these reasons may include:
- Playing the currency game (currently we are looking at a very weak Australian dollar making Australian real estate up to 30% cheaper to most foreign buyers than it was last year (pending on your country). Some investors are piling in just on a currency play alone, even if prices stagnate, when the dollar rises again at some point, they will make a good return.
- Diversification of assets outside of their “unstable economy”
- Fear of a change in governing body and the effects that may have on their investment portfolios and businesses
- Children’s plan to study abroad
- Retirement plans + Emigration plans
- For love of clean air, good wine and untainted food
SO IF YOU ARE INTERESTED IN REAL ESTATE INVESTING, HOW WE CAN HELP?
- If you do not have the time, resources or large amounts of available cash to invest into real estate, but you would still like the opportunity too
- Or, if you are an Asian based investor and interested to invest into Australian, UK or USA real estate development projects
- Or, if you are Australian (as I am) and looking for investment opportunities outside of Australia
InvestaCrowd is a global real estate crowdfunding platform headquartered in Singapore, deals on InvestaCrowd are exclusively available to our members only. Their are limited investment positions in each deal, and investments are offered on a first come first serve basis. To see the latest offerings and begin investing today, login and create an investor account at www.investacrowd.com
We welcome all comments and would love for you to share if you find this useful and interesting, thank you.