UNSW UNSW Business School UNSW Business School

Would you pay extra to live among people who share your background?

October 21, 2015
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​​​New research reveals the connection between cultural distance and house prices

Australia’s recent commitment to accept 12,000 Syrian refugees came with a government reassurance to the community that the new arrivals would not be allowed to settle in “ethnic ghettos” and would instead be spread out across the country. 

If the latest wave of immigrants into Australia make their permanent home here, and end up buying property, a most natural impulse would be to congregate together in urban centres. Being close to others who share a common language and background is an understandable way of finding support in a new land and a means of preserving a displaced culture. 

Maggie Hu,​ a senior lecturer in the school of banking and finance at UNSW Business School, has been studying the pattern and prevalence of immigrant homebuyers in Sydney, though the research results could likely be replicated in Melbourne and other urban areas. 

One of the main findings is that migrants are prepared to pay a premium to live in areas where there are other people of the same cultural background.

“Immigrants, particularly from Asia, display a greater degree of preference to settle in places where there is a ‘home’ culture,” says Hu. This is in marked contrast to recent European immigrants who display no strong desire to settle near people from their own country or continent.

Targeted areas

Among immigrant property buyers, Europeans make up the largest group, with Chinese being the second largest group at around 19% of Hu’s sample, followed by Arabic buyers making up about 10%. 

In general, the majority of non-European ethnicities tend to pay less and buy larger homes than the average Australian property buyer, says Hu – which suggests they are buying in lower priced and less dense suburbs. Despite this, some of these suburbs have seen quite dramatic property booms in recent times. 

‘If all the Chinese live together without integrating, in the long run it creates ethnic segregation which is not beneficial to the harmony of society’ 

– maggie hu

The suburb of Hurstville in Sydney, for example, where more than half of the population has Chinese ancestry, has seen property price growth of 25.6% in the past year, according to Domain Group data. 

Are the local real estate agents marketing the area abroad as particularly desirable for Chinese buyers? 

A spokesperson from Sanders Penshurst Estate Agents near Hurstville, says there’s no need for them to do so, as buyers arriving from mainland China have been made aware by their migrant agents of which areas to target if they want to be among their fellow Chinese citizens. 

Segregative phenomenon

Although many foreign investors are attracted to Australia for its natural beauty, when it comes to buying somewhere to live, Hu says the Chinese have different priorities. 

“In China not many cities have good natural environments. Maybe the very rich Chinese value nature but the vast majority don’t. They are practical people and what they care about are amenities such as good schools, hospitals and social interaction with their own culture.” 

Yet this kind of segregative phenomenon is at odds with the federal government’s ambitions for assimilation in order to create a harmonious multicultural Australia.

“I don't think it's desirable to have people ‘ghettoing’, if I can use that term; distribution of populations is important,” says Liberal MP Philip Ruddock, talking about the Syrian migrants. 

But he may just as well have been referring to the Greek population clustered in Melbourne – the largest outside of Greece – or the Chinese in Sydney’s Hurstville, Haymarket, Burwood or Eastwood where Chinese populations vary between 36% and 41%.

Hu is from Singapore where the housing development board has introduced laws that limit the numbers of Chinese residents in new developments to 80%. 

“If all the Chinese live together without integrating, in the long run it creates ethnic segregation which is not beneficial to the harmony of society,” she says.

In Singapore, punitive taxes have been introduced aimed primarily at discouraging Chinese investment into the housing markets. Hong Kong has followed suit. 

Price hikes

In Victoria this year, and largely in response to Chinese investment in Australian real estate which has increased by 60% during the past year, a new tax on foreign property buyers was introduced. 

Equivalent to 3% of the price of the property, it means that a Chinese national buying an $800,000 property will pay an extra $24,000 in addition to stamp duty charges. The aim is to force foreign investors to contribute to the services and infrastructure of the region. 

However there are some in the Chinese community in Australia who feel that they are being taken advantage of and misrepresented by being blamed for price hikes. 

‘Most of the Chinese buyers bidding furiously at auctions have been here for generations, smartly buying homes in their own thriving communities’ 

– dallas rogers

Wayne Tseng set up the Chinese Chamber of Property Investors, based in Melbourne, to represent local and foreign Chinese and inform them of their rights. Tseng says the widespread perception that the Chinese are responsible for inflationary property prices is misleading as price rises are only confined to certain pockets.

“What we do know is they are purchasing new developments, and their investment funds these developments, and the stamp duty that gets charged off each purchase goes to fund infrastructure,” Tseng told Fox news.

Dallas Rogers, a lecturer in urban studies at Western Sydney University, accompanied some of the roadshows in China that encourage offshore purchases of Australian property. 

He reports that Chinese and Australian agents offer free group tours for potential investors to travel Down Under. Although Rogers says that Chinese appear to pay a premium to get properties in the areas they want to live, he doesn’t believe that they are crowding out local buyers. 

“Most of the Chinese buyers bidding furiously at auctions – sending prices hundreds of thousands above reserve – have been here for generations, smartly buying homes in their own thriving communities near the best government schools,” says Rogers.

Foreign purchasing power

Whether or not the market is being skewed by the Chinese influence, foreign investment as a whole in Australian property has certainly been on the increase. A report from Propell National Valuers says that foreign buyers doubled in 2014 with 23,054 residential applications worth $34.7 billion lodged with the Foreign Investment Review Board.

In 2014 there were a total of 309,124 residential sales with only 7.5%, or about 23,000, to foreign buyers.

But what the report also confirms is that foreign purchasing power is much greater – with foreign buyers spending an average of $900,000 per property, though the overall median price was $480,000.

“Put another way, foreign buyers purchase property that is almost twice the price of the typical domestic buyer,’’ the report says, but the caveat is that it affects mostly inner-city apartments and top-end properties in Sydney and Melbourne, with Brisbane also starting to come on to the radar.

“In those specific markets, the impact on prices is likely to be measurable, but our analysis suggests that foreign investors have added around 5% to values of prestige property, in preferred suburbs only,” says the report.

Annual immigration into Australia is predicted to hit 209,000 by the end of 2015, according to Department of Immigration figures. 

For those who continue to be worried about Australian ‘ghettos’, several researchers point out that, like former waves of immigrants from southern Europe in the 1950s and 1960s who clustered together for initial settlement support, today’s immigrants will begin to disperse throughout the community as they scale the economic ladder and become more affluent. 
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