Chinese Investment and Australian Real Estate

This assignment examines the effects of Chinese investment in Australian residential property, exploring its influence on market prices and proposing solutions based on management theory. The essay analyzes how both the Australian and Chinese governments can implement policies to mitigate potential negative consequences of this investment trend.

Running head: INTRODUCTION TO MANAGEMENT
Introduction to management
Name of the student
Name of the university
Author note

1INTRODUCTION TO MANAGEMENT
In the present global business scenario, all the major countries are trying to woo
the foreign investors to attract foreign investment in their country. Australia with having
effective legislations to attract foreign direct investments has attracted enormous foreign
investment in the real estate sector (Moran 2012). However, one issue being identified
is the amount of Chinese investment in the real estate sector in Australia. This essay
will discuss about the issue being originated due to investment boom in the real estate
sector. Moreover, effective and proper management theory will also be discussed to
overcome the issue.
The driving forces behind the Chinese investment boom in the real estate sector
in Australia are the investment friendly investment policies in Australia and the stringent
rules to buy residential property in China (Rivera and Oh 2013). Various new rules and
legislations are being imposed by the government of China which caused difficulties of
the buyers for the investment in the real estate sector. Thus, they found the easier
option of investing in the residential property in Australia (Gauder, Houssard and
Orsmond 2014). However, it made adverse effect on the economy of the Australia as
well as the economy of China. This is due to the fact that, the home prices in Australia is
rising rapidly due to the increase in demand which is posing challenges for the local
buyers. One the other hand, the economy of China is also facing issues due to the
outflow of investment from the country. The demand from the domestic buyers cannot
be met effectively due to the fact that, the price is rising for the excessive demand for
the residential properties due to the increase in the investment by the Chinese
investors. The Chinese economy is also facing backlash due to the outflow of the capital
from the country.

2INTRODUCTION TO MANAGEMENT
According to the report, the rate of the Chinese investment is more in Sydney
and Melbourne. It is being reported that out of total approved foreign investment of $248
billion, the real estate sector in Australia alone contributed for $55 billion, out of which,
investment from China alone comprise of $47.3 billion (Needham 2017). Thus, this
report shows the extensive investment being made by the Chinese people. Due to this
reason, the average housing property cost in Australia is rising. There are various
measures being taken by both the government of both China and Australia to prevent
this trend. The actions initiated by the Australian government include forcing the
temporary residents in Australia to sale their properties if their temporary residential visa
gets expired. This caused selling of properties worth value of $48.7 million. However,
these measures are having negligible impact on the issue due to the fact that the
investment is growing rapidly. Actions taken by the government of China includes
initiation of various policies in preventing the outflow of the investment from the country
(Bayoumi and Ohnsorge 2013). However, all the measures being initiated by the
government of both the countries lack the effectiveness. Thus, effective management
theory should be implemented in order to prevent this identified issue.
It is being recommended that contingency theory will be the most effective theory
to be implemented in prevention of this issue. According to the contingency theory, the
prime responsibility of the managers is to initiate the decision making process according
to the situational requirement (Battilana and Casciaro 2012). This theory also states that
the decisions being taken by the managers should be flexible enough to withstand the
change in the business scenario. Thus, this approach will be the most effective
approach for the Chinese and Australian government. This is due to the fact that, the

3INTRODUCTION TO MANAGEMENT
external environment and challenges for both the government is fluctuating and will
rapidly change with the change in time. Thus, government has to initiate the
contingency theory, which will help them change or modify their decisions according to
the situation.
For instance: Government can impose higher rate of tax on exporting a particular
item if it is been seen that the particular item is having more demand in the domestic
market and deficit is occurring due to the high demand. Thus, imposing higher level of
tax will reduce the rate of export. On the other hand, after a few years, if the same item
see surplus in supply with having less demand in the domestic market, then the
government may again exempt the item from taxation to enhance the export market for
it. This is one of the examples for contingency theory. This will help the government in
making the decision according to the external situation.
Thus, according to the contingency theory, the government of both the countries
should come up with different measures to prevent the issue. One of the key measures
that should be taken by government of Australia is to impose higher tax rate on foreign
investment on the residential properties (Gholipour Fereidouni and Ariffin Masron 2013).
It will reduce the foreign investment in buying properties in Australia. Thus, the demand
for the residential properties will reduce, which will eventually decrease the price in the
market. On the other hand, the Chinese government should impose higher tax on the
outflow of the foreign investment for specific sectors (Solleder 2013). It is due to the
reason that, outflow of the foreign investment will not only drain the capital from the
country, but also helps in induct more capital in the capital. Thus, government has to
identify the areas where the probability of the return in investment is lower such as the

4INTRODUCTION TO MANAGEMENT
investment in real estate in Australia. The identified areas should be levied with higher
tax rate to de-motivate the investors. It will help to prevent the non-profitable outflow of
capital from the country.
Thus, it can be concluded that, with the effective implementation of the
management theory being discussed in this essay will help to overcome the issue being
faced by China and Australia. The issue of the balance of the economy can be solved
by having the discussed theory in place. It will help the Australian government to meet
the domestic demand and Chinese government to prevent the outflow of the
investment.

5INTRODUCTION TO MANAGEMENT
Reference
Battilana, J. and Casciaro, T., 2012. Change agents, networks, and institutions: A
contingency theory of organizational change. Academy of Management Journal, 55(2),
pp.381-398.
Bayoumi, M.T. and Ohnsorge, F., 2013. Do inflows or outflows dominate? Global
implications of capital account liberalization in China (No. 13-189). International
Monetary Fund.
Gauder, M., Houssard, C. and Orsmond, D., 2014. Foreign investment in residential real
estate. RBA Bulletin, June, pp.11-18.
Gholipour Fereidouni, H. and Ariffin Masron, T., 2013. Real estate market factors and
foreign real estate investment. Journal of Economic Studies, 40(4), pp.448-468.
Moran, T., 2012. Foreign direct investment. The Wiley-Blackwell Encyclopedia of
Globalization.
Needham, K. (2017). Chinese buying Australian real estate tops foreign investment:
report. [online] Illawarra Mercury. Available at:
http://www.illawarramercury.com.au/story/4651219/chinese-buying-australian-real-
estate-tops-foreign-investment-report/?cs=7 [Accessed 29 Aug. 2017].
Rivera, J. and Oh, C.H., 2013. Environmental Regulations and Multinational
Corporations' Foreign Market Entry Investments. Policy Studies Journal, 41(2), pp.243-
272.

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Solleder, O., 2013. Trade effects of export taxes (No. 08/2013). Graduate Institute of
International and Development Studies Working Paper.