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