The big dangers of our millionaire visas16 Aug 2014
Angus Grigg Shanghai
In Vancouver, Canada, they have become known as “zombie suburbs” – inner city areas dominated by new apartment developments, which despite their wealth and population density have failed to thrive. They are not dead, but like the zombie, only half-living.
Canadian urban planner Andy Yan coined the phrase to try to explain the effect a large inflow of offshore money, mainly from China, was having on parts of Vancouver.
He studied the Coal Harbour area and found that 25 per cent of the apartments were unoccupied for much of the year.
Anecdotes such as this and the accompanying surge in property prices were part of the reason Canada scrapped its so-called “millionaire visa scheme” in February.
Just a few weeks later Canberra took the opposite approach and sought to speed up approvals for a similar scheme in Australia known as the Significant Investor Visa.
Figures released by the federal government on Tuesday showed that 343 visas have now been approved under the program and another 602 people are in the queue. If all these are approved, that will generate $4.7 billion in funds flowing into Australia, as each visa holder is required to invest $5 million into an approved investment scheme for four years, in return for permanent residency.
It’s an impressive number for capital-starved Australia and is likely to grow substantially, yet the Canadian experience should motivate politicians and urban planners to look behind the headline figures.
From Yan’s point of view, constant evaluation of the program is critical. He said one consideration in stopping the Canadian scheme was that it had never been properly studied. “We never evaluated if economic migration made sense,” says Yan, who works for Bing Thorn Architects and sits on Vancouver’s City Planning Board.
That left many grasping at anecdotes to try to explain what was happening in Vancouver and if it was a positive or negative for the city.
Yan’s research suggests the economic migration program increased the city’s rental stock, along with allowing for better urban design and amenities like daycare centres and parks.
But it has also played a part in making Vancouver second only to Hong Kong on the list of the world’s least affordable cities to buy a house, according to Demographia, with Sydney fourth and Melbourne sixth.
Yan talks about the rise of Vancouver and more recently Sydney and Melbourne as “hedge cities”. That is, cities where wealthy Chinese and other nationalities buy property as an insurance policy against things going wrong at home.
Yan speculates this is one reason why “house prices in Vancouver have completely decoupled from wages”.
And there are now signs of this in Australia, where much of the Chinese buying has been concentrated around inner city suburbs close to universities.
Data released by the Australian Bureau of Statistics on Wednesday showed wage growth at a record low of 2.6 per cent for the year to June 30.
Yet on the same day the ABS said house prices had risen 10 per cent across Australia, led by a 15.6 per cent rise in Sydney and 9.3 per cent in Melbourne.
No one is suggesting this decoupling of house price and wages in Australia is entirely driven by Chinese buying and certainly not due to the Significant Investor Visa Scheme, which is still in its early stages.
But even Reserve Bank governor Glenn Stevens, a man not known for sensational statements, has said the effect can’t be entirely discounted.
He said cashed up Asian buyers, mainly students, were “quite prominent” in inner city areas and had an effect on “asset prices and the exchange rate”.
The issue is that this new wave of economic migrants is vastly different from those who came before them.
They are seeking a passport and the protection this provides, rather than a new place to live.
The experience in Canada is that those on the investor visa keep their economic interests in China and use cities like Vancouver and Toronto as a second home.
According to CLSA the economic benefits from surging Chinese interest in Australia is likely to be relatively narrow.
It identifies property groups such as Mirvac, Lend Lease and Goodman as the biggest winners, along with construction materials company Fletcher Building.
This comes back to the motivation behind the decision to seek Australian permanent residency.
According to CSLA more than 65 per cent of migrants cited their children’s education as the main factor, followed by Australia’s clean environment.
Just over 10 per cent of respondents cited “business investment” as a factor.
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http://www.afr.com/p/world/the_big_dangers_of_our_millionaire_sQOIKN9QZvTIouhQ3FldMP