Millionaire Hunters Lure Rich Chinese to Australia – Bloomberg 07-22-14

Salient to Investors:

  • Chinese millionaires who invest at least $4.7 million and qualify for Australian residency can get around China’s restrictions on converting currency and sending it abroad. China caps the amount of yuan that individuals can convert into other currencies every year at the equivalent of $50,000 and bars transferring currency abroad directly. China’s goal of free convertibility of the yuan is a step toward making Shanghai a global financial capital by 2020.
  • Baker & McKenzie estimate the flow of money into Australia could rise to as much A$10 billion a year. More than 1,000 people, almost all from China, have applied. Canada canceled a similar program in February with more than 65,000 pending applications because it felt immigrant investors pay less in taxes than other economic immigrants, are less likely to stay in Canada over the medium-to-long term and often lack the skill and language proficiency to integrate with other immigrants.
  •  Australia’s Significant Investor 188 Visas are similar to US EB-5 visas and carry a $500,000 investment minimum and the requirement to create jobs.( ‘8’ in Chinese sounds like the word for making a fortune and is considered lucky.)
  • Immigrants are required to invest the A$5 million into government bonds or complying funds that invest in assets such as infrastructure, real estate and agribusiness, for 4 years.
  • Bain & Co estimated in 2013 that 60 percent of high-net-worth Chinese – those with at least $1.6 million – have left China or are considering it.
  • Bill Fuggle at Baker & McKenzie said the Chinese rich want to hedge their bets and their closest option is Australia, which has a special and very long relationship with China. Fuggle said the purchase of a home in Australia does not qualify, though visa applicants typically buy them as well, and said the Canadian program termination has increased interest in the Australian one.
  • Chinese investment in Australian property climbed 42 percent to A$5.9 billion in the year to June 2013, surpassing Americans as the biggest group of buyers, the Foreign Investment Review Board said in its latest annual report.
  • Catherine Chow at Deloitte said their Chinese clients seek agribusiness focused on high protein, meat products and soy, and clean energy, largely solar and wind.
  • Australia’s A$1.7 trillion pension sector is the fourth-largest in the world.

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Australians priced out of housing, report says – BBC News 03-05-14

Salient to Investors:

Credit Suisse said:


  • Chinese buyers are pouring into the Australian residential market every year, pricing out a generation of Australians from the housing market, with many facing a lifetime of renting.
  • Over the past 5 years, Sydney prices have risen by 45% and Melbourne by more than a third, as they remain the most popular destinations for Chinese buyers, who are buying 18% of new housing in Sydney and 14% in Melbourne.
  • The Chinese will continue to invest and their buying will rise 30% by 2020.
  • Australian companies should benefit from the next stage of China’s economic development.


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Bubble Trouble Seen Brewing in Australia Home Prices – Bloomberg 11-06-13

Salient to Investors:

Housing in Australia accounts for 60 percent of average household wealth versus a global average of 45 percent.

Average household debt has been near 150 percent of annual income since 2006 versus 135 percent in the US. House prices have not fallen more than 10 percent in any one year for more than 40 years.

RP Data said houses in Sydney took 26 days on average to sell last week versus 36 days six months ago: In Melbourne, 34 days versus 46 days.

Saul Eslake at Bank of America Merrill Lynch said it is easy to see how a bubble could emerge, but for now price increases are not being accompanied by a rapid rise in borrowing or building. Eslake said rising sales to investors puts the housing market in a more precarious position if economic conditions unexpectedly sour because they are not as committed as owner-occupiers, and Australia’s tax structure encourages investors to buy when they otherwise would not.

Investment in residential property by self-managed superannuation funds has risen 65 percent since mid-2008 and 10 percent in the 12 months to June, borrowing on average 70 percent of the value of a home versus 90 percent for regular borrowers.

National Australia Bank said foreigners accounted for 12.5 percent of purchases of new homes in Q3 versus 5 percent through most of 2011.

Michael Blythe at Commonwealth Bank of Australia said Australia’s population concentration puts upward pressure on capital city dwelling prices.

Craig James and Savanth Sebastian at Commonwealth Bank of Australia said talk of a housing bubble appeared in Australian media articles more times in September than at any time since 2003.

First-home buyers accounted for 13.7 percent of loans in August, the lowest level since April 2004, and versus a high of 31 percent in May 2009.

Matthew Hassan at Westpac Banking said buyers are not looking to buy in anticipation of significant capital gains.

Population growth in Australia averaged 1.6 percent a year over the past decade, meaning it needs 170,000 new homes a year versus actual supply of 154,000. ANZ Bank said Australia has a shortfall of 270,000 homes, equivalent to 20 months of housing construction, and will climb to 370,000 by 2015.

Paul Bloxham at HSBC said developers and households are unlikely to build new houses unless prices are rising, so a housing price boom is a necessary evil.

Adair Turner said the UK economic recovery is heavily focused on that favorite old British activity – another house price boom.

The IMF said Sweden needs to take measures to prevent consumer debt and housing costs from spiraling out of control.

Chinese home prices rose the most in October for the 17th consecutive month of increases.

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Chinese Buying Sydney Homes at Unprecedented Rate, McGrath Says – Bloomberg 09-12-13

Salient to Investors:

John McGrath at McGrath Estate Agents said:

  • Home prices in Sydney could rise 5% to 10% by as much as 10 percent over the next 12 months, because as much as 80 percent of homes in parts of Sydney are being sold to Chinese buyers, driven by record low interest rates.
  • The Chinese are buying for capital growth and to provide a home for their children attending university in Australia or simply to live outside China.
  • Rental yields above 4 percent is also spurring price gains.
  • Sydney’s house price growth rate is unsustainable.
  • Demand is coming from the growth of self-managed superannuation funds, or SMSFs, which can invest in stocks, bonds, cash deposits, property, artwork and even wine.

The Foreign Investment Review Board said Chinese buyers, facing government restrictions on purchases at home, were the third-biggest source of foreign investment in Australian real estate, behind the US and Singapore in F2012.

Australian Finance Group said almost half of all their home loans in New South Wales were to investors in August, the highest level ever recorded in any Australian state.

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Home prices in Sydney could rise by as much as 10 percent over the next 12 months, driven in part by unprecedented levels of Chinese demand, according to McGrath Estate Agents.

As much as 80 percent of homes in parts of Sydney are being sold to Chinese buyers, John McGrath, chief executive officer of the company that recorded A$7 billion ($6.5 billion) of property sales in the year to June 30, said in an interview in Sydney yesterday. Record-low interest rates and the biggest influx of investors in almost a decade are also fueling prices.

“The Chinese market is extremely strong, the strongest I’ve seen a new entrant into the market,” McGrath said. “Record low interest rates, the ability to fix such rates for a long period of time is very attractive.”

Chinese buyers, facing government restrictions on purchases at home, were the third-biggest source of foreign investment in Australian real estate, behind the U.S. and Singapore in fiscal year 2012, the latest figures from the Foreign Investment Review Board showed. They accounted for A$4.2 billion of transactions, a 75 percent jump from 2010, according to the data.

Chinese are buying in Australia on expectations of capital growth, to provide a home for their children attending university in the country or simply to live outside China, McGrath said. At a recent property auction in Eastwood, 17 kilometers (11 miles) northwest of Sydney’s city center, all 38 of the registered bidders were Asian, McGrath said. The three-bedroom house with a double lock-up garage and two sun rooms opening on to the back yard, sold for A$2.39 million, more than A$1 million over the reserve price, after 62 bids by eight hopeful buyers, according to the agent.

Highest Bidder

In an auction, serious potential buyers register their interest before it starts and an auctioneer then solicits offers. If bids reach the minimum price sought — the reserve price — the house is sold to the highest bidder. If the maximum bid is below the seller’s minimum price, the home is “passed in” and remains unsold.

McGrath, which has offices in New South Wales, Queensland and Canberra, has created a China desk in Sydney to cater to Mandarin-speaking clients and could eventually start operations on the mainland, he said.

“I haven’t seen a trend like this in 30 years, in terms of a brand new demographic group entering the Australian market with so much impact as I’ve seen in the last 12 months,” McGrath said in a separate interview with Bloomberg Television.

Rising Rents

While Sydney has been a “stellar performer” over the past six months, the city’s house price growth rate is unsustainable, he said.

House and apartment prices in Sydney rose 7.4 percent in the eight months to Aug. 31, compared with a national average of 5.1 percent, the RP Data-Rismark Home Value Index showed. More than 85 percent of the homes that went to auction in the city sold successfully in the first weekend in September, the highest rate since 2008, according to Australia & New Zealand Banking Group Ltd. (ANZ)

“There are long-term growth prospects but the current growth rates probably need to slow at some point soon,” McGrath, who forecasts prices could rise by between five and 10 percent in Sydney in the next year, told Bloomberg Television.

Demand from investors, drawn by rental yields that remain above 4 percent even as mortgage rates drop below 5 percent, is also spurring price gains, he said.

Investors Surge

Almost half of all home loans in New South Wales state negotiated by Australian Finance Group Ltd., the nation’s biggest mortgage broker, were to investors in August, the highest level ever recorded in any Australian state, the company said.

Adding to the growth of investors in property is the rise of self-managed superannuation funds, McGrath said. The funds, valued at A$506 billion now, are expected to rise to A$2 trillion by 2030 as more Australians choose to manage their own pensions, according to an estimate from the Australian arm of consultants Deloitte Touche Tohmatsu Ltd.

SMSFs can invest in a broad range of assets including stocks, bonds, cash deposits, property, artwork and even wine. Under certain circumstances, they can borrow money to invest in property and equities.

This fund tracks 36 bubbles—and 33 have completely popped – Quartz 08-06-13

Salient to Investors:

Jeremy Grantham’s GMO claims that of the 36 major bubbles it says it tracks, 33 have completely popped, or returned to their prior trends.

GMO’s more recent predictions, the Australian and UK housing market bubbles, have yet to pop. James Montier at GMO says investors are being force-fed higher risk assets at low prices, a product of central banks’ loose monetary policies.

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This fund tracks 36 bubbles—and 33 have completely popped

Australians Priced Out of Dream Swap Backyards for Balconies – Bloomberg 01-14-13

Salient to Investors:

Sydney is the most unaffordable housing market in the English-speaking world. Demographia report Australian homes cost 6.7 times the gross annual median household income in Q3 2011 versus 3.1 times in the US and 5 times in the UK.

Apartment ownership is rising as more are being buyers priced out of the housing market. Apartments and townhouses accounted for 35 percent of new housing construction in Q3 2012 versus 29 percent 5 years earlier and 21 percent 20 years ago. 13.7 percent of Australians lived in their own apartments and townhouses in 20111 versus 12.4 percent in 2006.

RP Data report apartment prices rose 0.5 percent in 2012 versus a 0.5 percent decline for houses.

Sydney is 5 times the size of New York City and has 991 people per square kilometer versus 10,425 in New York, 3,124 in Los Angeles and 5,199 in London.

Debt as a proportion of disposable income climbed to 147.8 percent in Q3 2012 versus 76.5 percent 15 years earlier.

John Kim at CLSA Asia-Pacific Markets said apartments will be a big component of future residential living in Australia, and developers will have to get into apartments.

Traders are pricing in a 61 percent chance the RBA will hold rates at a half century-low of 3 percent next month. UBS, Commonwealth Bank of Australia, and Barclays forecast no rate cuts in 2013.

National Australia Bank said buyer demand is strongest for new inner-city, low-rise apartments and townhouses, and will strengthen for high-rise apartments in city centers and inner-ring suburbs in the next 12 months.

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Stock market returns since 1900: The 23-year spell when UK shares failed – Mail Online 02-08-12

Salient to Investors:

Research by Elroy Dimson, Paul Marsh and Mike Staunton at the London Business School shows:

For many people, the long-term has to be very long-term to guarantee that they do not lose money – unfortunate timing can mean it can take several decades for markets to make up for a period of losses.

Going back to 1900 shows that there was a period as long as 17 years when investing in US shares showed zero real returns, even with dividends re-invested.

The 3 periods of negative real returns were 1905-20, 1906-21 and 1966-8.

For UK equities, the longest period was 23 years ending in 1921 after GDP contracted by a record 8.1 per cent and fell more than 20 per cent for the 1919-21 recession as a whole.

Investing in the Italian stock market in 1905 or 1906 could have taken as long as 74 years to breakeven after adjusting for inflation.

Taking into account investment charges makes it even harder to make a profit.

Over a lifetime or longer, equities have been the best investment.

£1 put into the British stock market in 1900, with dividends re-invested would now be worth £22,432 or £291 adjusted for inflation , while prices increased 77-fold – and far outstrips the returns from investing in bonds.

The vast majority of the gain on equities comes from reinvesting dividends. Without dividends reinvested, £1 invested in 1900 would now be worth just £1.80p after adjusting for inflation.

In the 1990s, the total return on bonds was just short of the return on equities, while in the 2000s the total real return on bonds was 2.4 per cent and real return on equities was zero.

In the 112 years since 1900, high-yielding shares with dividends re-invested rose 106,765-fold versus 4,255 for low-yielding shares

Between 1972 and 2001, the returns in countries whose currencies had been weak over the previous 5 years showed returns of 17 per cent a year versus half that investing in countries whose currencies were strong over the previous 5 years.

The best-performing house-price rises since 1900 were Australia with 2.03% per year and the UK with 1.33% per year.  Norway was 0.93%, the Netherlands was 0.95%, and France was 1.18%. The United States with 0.09% per year was the worst.

House price indexes appear to have kept pace with inflation over the long-term.

The appetite for risk in 2011 hit its lowest level in 30 years.

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