More hype than reality: Significant investor visa “queue jumpers” yet to be significant

The issuing of the first two significant investor visas to wealthy Asian investors has generated a seemingly disproportionate amount of press coverage amid claims that the program could deliver significant benefits ranging from funding key NSW infrastructure projects to stimulating the prestige end of the property market and creating a whole new class of managed investment products.

Some estate agents operating at the prestige end of the Sydney and Melbourne markets are talking about the impact the visa will have on sales and prices while property listings websites are attributing large spikes in searches for Australian property in part to the ‘SIV-effect’

Macquarie Bank has launched a new investment fund specifically targeted at providing SIV-qualifying investment options while property fund manager Centuria says all its new syndicate investments now qualify as part of the program.

But aren’t we getting a little ahead of ourselves?

Firstly, it bears mentioning again that just two visas have been issued to date - the first to a Chinese toy manufacturer who made a $5 million investment in Victoria state bonds - with Department of Immigration seemingly in no hurry to approve applications despite a pipeline of more than 400 applications.

At last count there were 222 invitations issued to investors, 212 of them to Chinese investors.

To qualify for a visa, offshore investors must commit to invest $5 million in complying investments.

These include Commonwealth, State or Territory government bonds, ASIC-regulated managed funds with a mandate for investing in Australia; and direct investment into Australian proprietary companies.

Direct property investment does not qualify – an investor cannot buy a $10 million mansion on Sydney harbour for example and apply for the visa - but logic dictates that successful applicants will want a place to live and given their wealth, a prestige home will most likely be on the shopping list.

Dominic Ong, who heads up a new Knight Frank special significant visa team specifically targeting wealthy Chinese investors, says he is showing Asian clients around some of the most expensive Sydney waterfront real estate.

He says they are looking in the $30 million to $50 million price range describing them as “ultra-wealthy Chinese individuals”.

“They want the best properties on the waterfront with a private jetty, harbour bridge view, swimming pool and many car parks.

“They want homes they can use for private functions and for entertaining,” he says.

Ong also says there is strong interest from wealthy Chinese investors in office, shopping centres and hotels (when they can find them) and development land – though none of these investment would qualify on their own for an SIV.

The scheme is being heavily promoted throughout China with the Bank of China recently completing a SIV road show of Chinese cities to spread the word.

Ong says the market response has been “very positive”.

The NSW government has been the most vocal at trumpeting the significance of the scheme for its economy, given that it requires that investors put a third of the required $5 million into NSW Investor Migrant Waratah Bonds – the only state to have such a requirement.

The state bond program is used to fund key infrastructure projects such as new roads and highways with commentators writing that “infrastructure queue jumpers” as some have called them – will pour hundreds of millions of dollars into state coffers, paying for new roads and highways.

NSW deputy premier Andrew Stoner reported in parliament last week that 138 applicants had been nominated by New South Wales for a significant investor visa which if they proceeded to invest would deliver a minimum of $207 million paid into Waratah bonds.

“That is more money for WestConnex, upgrades to the Pacific and Princes highways and the Bridges for the Bush program,” he said.

Were all these applicants to be granted visas, then around $200 million in funds would indeed flow into NSW coffers – but that’s a pretty big ‘if’ and "when".

Other reports have talked about an apparent upper-end expectation of 400 visas being granted per year in NSW alone once the program is in full swing.

The Department of Immigration has made public statements about how many visas it expects to issue and given the slow progress to date, 400 a year in NSW seems wildly optimistic.

Certainly though, the overall importance of Asian and other foreign investment has been building for some time as seen in recent shopping centre purchases like the $400 million spent by a Korean pension fund for a half-stake in the Erina Mall shopping centre on the Central Coast and numerous other transactions and projects.

Andrew Stoner revealed in the same parliamentary budget update that he had just met with the Commonwealth Bank's head of institutional banking Ian Saines, David Jones chief executive officer Paul Zahra and China UnionPay chairman Su Ning to launch a partnership that will see all 170,000 Commonwealth Bank merchant terminals across Australia accept China UnionPay cards.

“This is a wonderful thing for the increasing number of Chinese tourists visiting Australia, Chinese students and business visitors to our fair shores who use China UnionPay cards,” Stoner said.

For its part, David Jones stores will now accept UnionPay credit cards.

All of this points to expectation of a rise in Chinese investor interest across all spheres of the Australian economy from business to farms to hotels to prestige real estate.

This is clearly happening. 

But as to the impact of the significant investor visa program, it has been largely non-existent to date.

Too many unknown factors remain for anyone to be certain just what kind of impact it will have over the medium and long-term.