japanese property development in australia

Japanese Property Development In Australia

MICHAEL BERRY

Department of Plunning, Policy & Lundscape, Royal Melbourne Institute of Technology, G. P. 0. Box 2476V, Melbourne, Victoria 3001, Australiu

PERGAMON

llllllllllllllllllllllllllllllllllllllllllllll 0305-9006(1994)41:2;1-3

Biography

For inanv kc’ar5 11~3 scrwd as ;I meml~cr of tlic co~ii~ii~~~i~t~~I~~~~~~il (‘~~t~ti~~ 101

Ilrhan Research and Action in inriei--~leltlo~rr-nc. lie I\ curi.c~ntl! the ~\u~ti,~I;~~i,~~i

rcprescntatiw on the Esecuti\,e Hoarcl of the Intern~~tion;il h~c~ic~loyc~,rl

Aeociation Research (‘committee on IJrhan and Kcgion;~l IX%\ cloprncnt <IIILI ;I

nienitwr of the international crlitorial coniniittce 01 the I .c~iigin;~~i ~0u1~1~;11. //~jif\fi/y

.Srr/clif,,

Hix other i-went rcwarch has included ;I 1;ti-gc cco~io~ii~c aiitl 4oci;iI 11i1pdc3

analvsis of rctlucing lead e.xpcbur-c in urlxin arc25 and :I jvc)lL’c’l 101 the .\u\1l<ll1<lll

Housing Kcwarch C‘ouncil looking at the l>rocc\\ ;111d inlprcth of tc’n;~nt\ IIIOI IIIC

into home o\\ncr\hip OII the Northern edge of Mclhournc during tllc I’JSiI\

114

Pergamon

Contents

Abstract

Acknowledgements

1.

2.

3.

4.

5.

6.

Progress in Planning, Vol. 41, pp. llS201, 1994. 0 1994 Elsevier Science Ltd

Printed in Great Britain. All rights reserved. 03059006/94 $26.00

0305-9006(93)EOOOl-K

Introduction 119

Patterns of Japanese (Outward) Foreign Investment 121

Notes: Chapter 2 129

Patterns of Foreign Investment in Australia

Notes: Chapter 3

131

137

Japanese Direct Investment in Australia: The Lure of Real

Estate and Tourism

4. I. Introduction

4.2. Melbourne Boom, Melbourne Bust: the Case of C. B. D.

Office Development

139

139

4.3. Remaking Landscapes: the Case of Tourism

Notes: Chapter 4

147

155

166

Impacts of Japanese Property Investment in Australia 167

5.1. Economic Effects 167

5.2. Environmental Effects 174

5.3. Social Effects 177


Three Scenarios 181

6.1. Scenario A: ‘Up, Up and A way’ 181

6.2. Scenario B: ‘Steady as she Goes’ 184

6.3. Scenario C: ‘Decline and Fall’ 185

6.4. Conclusion 186


117

118

115

116 Progress in Planning

7. The Policy Framework Debate

Appendix I

Appendix 2

Bibliography

Abstract

During the 1980s Japanese foreign direct investment increased dramatically.

Much of this flow was concentrated in North America and the nations of the

Asia-Pacific region, including Australia. Japan became the major source of foreign

direct investment to Australia during this period. However, this investment was

strongly concentrated in selective real estate developments, notably landmark

ofticc construction in the C.B.D.s of Sydney. Melbourne and, to a lesser extent,

the smaller Capital Cities. and in hotel construction, tourist resorts and the like in

north-eastern Australia. The form, scale, timing and location of these projects has

had important economic, social and environmental impacts which raise questions

of appropriate government policy responses at local, regional and national

level in Australia. This study critically examines existing policies in the light of

the patterns and impacts of Japanese investment and property development in

the 1980s.

117

Acknowledgements

This research project was supported by an Australian Research C’ouncil Small

Grant and was carried out while the author was ;t research fellow in the National

Key Centre For Design at Royal Melbourne Institute of Technology.

118

CHAPTER 1

Introduction

By IWI, Japan had become the major source of new foreign direct investment in

the Australian economy. Over the preceding 5 years most of this capital inflow

had been directed towards property developments associated with the rapidly

growing business services and tourism industries. The form, scale, rapid timing am

location of these flows has had important economic, environmental and cultural

impacts and raises complex questions for the formulation and implementation of

appropriate public policies by governments at all levels in Australia. This project

is aimed at posing and answering some of those questions. More particularly, the

study aims to:

(1) Review and establish the patterns and sources of Japanese property

investment in Australia, especially during the second half of the 1980s and

early-IWOs;

(3) develop scenarios of possible developments in the 1990s;

(3) analyst the economic, environmental and social/cultural impacts of these

developments and the adequacy of conventional techniques for their

assessment; and

(4) analyse the adequacy of the public policy framework within which

governments in Australia have responded to these developments.

The methodology of the study entails:

(a) An extensive review and analysis of primary data collected from a range of sources, including: Australian Bureau of Statistics, Foreign Investment

Rev&w Board. Bureau of Tourism Research. Australia-Japan Economic

Institute, Japanese Ministry of Finance and Japan Institute for Social and

Economic Affairs;

(b) an extensive literature review of relevant secondary data;

(c) a selcctivc review and analysis of relevant government reports and inquiries,

such as those emanating from the Industries Assistance Commission.

Economic Planning and Advisory Council and Department of Foreign

Affairs and Trade; and

119


(cl) selective intervicus with key actors engaged in relcvdnt financial. propct-t!

and rcsearch contexts (WC Appendix I ).

The paper is structured ;I\ folIow4. (‘haptct- 7 dc\cribeh the o~cr~tll p;tttct.tt

of Japanese out\vard foreign invotmcttt in the post-War period. highlighting

its level. rapid recent growth and etncrging spatial distribution worldwiclc.

Chapter 3 focuses on the general situation v.ith rc4pcct to .Au41r;ili;i. including

the pronounced climb in ovcrsc;t\ liabilitic\ -- cy~ccialll debt ~~ incurt-cd in

the decade of the I%+)~. The switch of t’orcign in\,cstment from traditional arca\

into propert!. business \crvice\ arid xxxtritics is noted. The regional source of

invcsttncnt funds also changed. fa\,oitring Eut-oclollat- market4 (for portfolio

investment) and Japan (for nt’w direct invotmcnt) o\cr traditional British anti

I!.S. sources.

C‘haptcr 4 provides ;I detailed analysis of the emerging pcrttcrn of .I;I~;IIIC~C

l’orcign investment to Australia, stressing the LIIICVCII sectoral. temporal and

geographic outcome\ ohsercablc. Two CLISCS arc targeted t’ot- special csamination:

central city cotnmcrcial (office) development. in particular. in the Melhournc

C’.B.D.: and tourist developtncnts in Eastern Australia. The rcccnt eviclcncc

of over-dcvelopmcnt or cxccss capacity in these sectors i\ identifed and linkccl

to emerging signs of cconotnic in4tahilit!, in the .lap;~tit’w ecotiotii~~ noted in

C’haptcr\ 2 and 0.

C‘hapter 5 talcus up the economic. environmental and \oci;tl Impact\ 01

the particular devclopmcnts noted in C‘haptct- 4. b:ith particulat- ;ittentiott

to the two cast\ of central city, cle~~elopment ;IIICI tourism. .I’hc xlcquac~ 01

conventional c\aluativc ~lccision-m~tliing fr~rnicworks like co\t-t~cnctit anal+4 and

cnvit-onmcntal itnpnct ;isscssmcnt is xltiressctl.

C‘haptcr 6 prcscnts three alternative sccn;trio\ for Jap~t~csc investment in

Australia during the IWk. esprcssing. in turn. gt-owing. 4tagnatittg and declintny

level\. Each possible outcomc i\ linked to rclatcd (poaihle) dc~clopments in the

.lap;it~~sc political economy and international trends.

Finally. C‘haptcr 7 outline\ the Australian policy itxmcworh \\tthin which toretgn

invcsttncnt projects arc c‘onstraincd. ‘l‘hc gc>ncrallv lo~~sc and piecemeal charxtct~

of regulation is remarked and criticisms le~icd against the tenclerk to treat tii;iii\

large clevclopmcnts on ati curl /ro(. ot- ‘tat trach‘ basis notccl.

CHAPTER 2

Patterns of Japanese (Outward) Foreign Investment

In lYXY, Japan became the largest source country for direct foreign investment (FDI), accounting for 23% of worldwide capital flows (Tejima, 1992). In that

year Japanese FDI totalled $US67 billion. a more than 12-fold increase during

the decade of the lY8Os (see Fig. l).’ Portfolio investment also rose sharply to

$US131 billion in 1989. up from $US60 billion in 1985 (Keizai Koho Centre, lY90.

p. 50: Access Economics, IYYl, p. 6). During that period, Japan’s net foreign

asset holdings almost trebled to $US347 billion, making Japan the world’s largest

creditor nation, while the United States - leading creditor nation in the 1970s -

became the world’s largest debtor (see Fig. 2).

Paralleling these rapidly expanding global flows in finance, Japanese financial

institutions - particularly the banks - assumed a dominant role in world capital

markets. By the end of the decade the five largest banks, in terms of both assets

and deposits, were Japanese. with the largest U.S. bank, Citicorp, falling to 10th

place (see Table I).

“Loose monetary poliq on the back of historically large gains in current account \urplusc\ were at the heart of Japan’s riac as the dominant force in the world’s capital market\. Japan henelited from three things during this period: a strong yen, low

Source: Keizai Koho Centre. 1991: Australia-Japan Economic Institute. April 1992 l estimated

80,000

r


Source: Access Economics, 1991

200

c .z 0

r= m -200

2 a 400

--600

Japanese Property Development In Australia 123

markets.’ The escalating flow of capital was caused by a number of interacting

factors:

(1)

(2)

(3)

(4)

(5)

(6)

(7)

Abundant local savings and low domestic interest rates fuelled a

pronounced inflation in Japanese asset prices, especially land and equities.

High domestic asset prices encouraged the switch of financial capital

overseas in search of bargains, a trend reinforced by the high value of the

yen in the wake of the Plaza Agreement in the mid-1980s.

The Japanese government progressively relaxed foreign exchange controls

from the early 1980s onwards, allowing Japanese financial institutions.

including the huge life insurance offices to diversify into foreign financial

assets.

Sustained growth in the U.S. twin deficits led to relatively high U.S.

interest rates and a low-value dollar. encouraging pronounced Japancsc

investment, especially in U.S. government bonds (see Table 2).

The high value of the yen (endaka) encouraged the strategic relocation

of low value-added manufacturing production and assembly to nearby

countries like South Korea for re-export both to world markets and back

to Japan.

Japanese current account surpluses sparked protectionist responses

from major trading partners, leading to direct investment behind trade

barriers in the U.S. and Europe. To date. however. manufacturing is still

overwhelmingly a domestic affair. with only 5% of output produced outside

Japan, in comparison with more than 20% of German and U.S. output

produced beyond their national boundaries (Access Economics. IYY I).

Japanese foreign investment continues to flow strategically into the

extraction. processing and transport of raw materials. However, the rclativc

importance of such investment - dominant for most of this century - is

being undercut by the improvement in energy cfficicncy and a shift towards

technologically advanced. high value added production.

High lcvcls of economic growth over a pronounced period has Icd to high

and rising living standards in Japan. Japanese per capita GNP now exceeds

fAHI,E 2. Geographic distribution of Japanese net purchases of foreign securities (“10 share)

19x5 I YSh 10x7 IYSS I W’)

Source: .I. P. Morgan. World Financial Markets. (Quoted in Acccs Economlca. I9r)l )


TABLE 3. Comparisons uf GDP, lY88(“1

u.s A.

Japan Germany. F.K Frante L’.K Il:ll! ~‘anxla Bru1l Spmn Australia India Nctherlanda

GNP (Nomlnal)(f” _

(US Per Capita hillion) (II%)

4Xx 1 IY.Xl3 7X67 73.3X? 12)X IY.741 04X 16.961 xi7 Il.658 X?h IJ.?lXJ 4x5 IX.675 350 7.4lfl iJ0 x1 7( 10 263 15.Y1l 25sc 1 27hlL 1 72x 15,467

(iNP (Nomtnal)“”

Swlt,cerland Sweden Korea. Kcp. 01 Bclgtum Mexico l‘aluan Indonew Saudi Arahla Thailand Hrmg Kong PhIlippine\ Malaysia

(a) All figures used for U.S.A.. Japan. tJ.K. and Germmy. F.K. arc GNP lewd. All ~,thcr countries are GDP based except France and Italy. As lor France and Italy. nominal (;NP tipurc,\ are GNP based while annual real growth rates are GDP haacd

(11) I!.S. dollar figures arc calculated according ttr the ;~nnual c\ch;mgc r;lle\ 01 the lhll I/lrr~r-,rirr,rllrrrI ~irrrrrlutrl S/trrivlri~\.

(c) IUX7.

that in the U.S., 1J.K.. Germany and Australia (WC ~l‘ahle 3). High local

living standards have increased the demand for leisure. including foreign

travel. Japanese international tourism has grown rapidly. cncouragcd by the

Japanese government as ;I useful offset to excessive balance of payments

aurpluscs. This has opened up profitable outlet5 for Japanezc in\.estmcnth 111

travel. hotels. resorts. etc. throughout the Asia-Pacitic I-cgion and hc~onci.

The cumulative effect of the above forces ha5 Iwcn to gcncl-ate the large

Hews of both portfolio and direct Japanese foreign investment noted ;IIXKC.

Japanese transnational corporations and financial imtitutions ;II-c IIOU e\tal>lidiing

thcmsclves as global operators alongside their longer cstablishccl competitor-\ I’I-om

North America and Europe. The strategic aim and compoGtion 01’ J;I~;I~Lx dirc‘c‘t

investment abroad is. as noted above. changing from it5 historic tocu\ on mining

and rcsourcc bad manufacturing, toward\ low value ~ldccl m;iriut~i~tirrin~ dnti ~.-

in particular -- financial services and real chtatc (we l-‘is. 3).

The focus of Japanese FDI has been the IJ.S.. which ha\ ;II~I-XYC~ OLCI- 4O”C3

of the total since 1950 (SW Figs 4 and 5 and Table 4). During the I%SO\ total t-111

into the U.S. grew at an avcragc annual rate of 22’L. reaching 61iS.W) l>illic)n h\


Source: Ministry of Finance. Japan l Calendar year # First half-year

m Manufacturing 89 Banking/Insurance 0 Other services

- q Mining/Agriculture q Real Estate

FIG. 3. Composition of Japanese foreign direct investment (% share).

Source: Ministry of Finance. Japan l Calandar year Y First half-year all others. year ending March

q Panama

H Australia

t

m USA

5o q U.K.

0 Indonesia

q The Netherlands

40

30

20

10

0

8 b s z b

FIG. 4. Japanese foreign direct investment by main recipient country (% share).

Source: Ministry of Finance. Japan l Separate figures not available for Oceania and Africa/Mid-East for earlier years

North America 0 South America

q Africa/Mid-East

195 l-90’ 1988 1989 1990

FIG. 5. Japanese foreign direct investment by region (% share).


i ! I I

I! ~


money supply increased by almost 10% a year. Near zero real interest rates and

share price-earnings ratios in excess of 50, rendered finance virtually costless for

Japanese firms. Zuirech or financial speculation was entrenched throughout the

corporate sector and reflected in rapidly inflating share and property prices. The

Nikkei index on the Tokyo stock exchange rose by over 300% between mid-1982

and the end of 1YXY. to peak at 38,915 (Daly and Stimson, 1991a, p. 11). Property

prices soared over the same period, with the total value rising to $US14,000 billion

(or six times GNP) by 1YYl (Daly and Stimson, 1YYla. p. 14), about half of which

related to the Tokyo market, where central city land sold for $US400,000 per

square metre. In lY87 average land prices rose by 75% in the Tokyo Prefecture.

Even in IWO, when Tokyo residential land price inflation had moderated to 6.6%,

values in Osaka increased by 56% and nationally by 17”/0 for both residential and

commercial property (Knight Frank Baillieu. lYY1).

The rate of inflation rose to 4% in 1990, spurring the Bank of Japan to

progressively raise official interest rates to 6”L, and government bond rates to

over 8%. Markets eventually responded. The Nikkei index fell below 20,000 in

October 1990, recovered and then fell towards 16,000 in April 1992, less than

40% of its 1YXY peak. Property values slumped by up to 20% in parts of Tokyo in

the second half of IYYO (Daly and Stimson, 1YYla. p. 15).3 In the first 3 months

of lYY1, $US12 billion in bankruptcies occurred. mostly in the property sector.

Tl7c Ecorwmist newspa;>er, predicted bankruptcies of $US28 billion in 1991 and

$US70 billion in lYY2 (quoted in Daly and Stimson. lYYla, p. 15). In 1992:

‘.(h)ank\ remain reluctant to increase property r&ted lending. wcn after the MOF (Japanese Ministry of Finance) lifted restrictions at the beginning of this year. KeRcctin~ ICSW~S Icarned during the ‘bubhlc economy‘. the Federation of the Nation-wide Bankers A\vxxation has published guidelines for financial institutions. Included in the rccommendationa arc cnhanccd screening to discourage speculative property lending. and a more const’rvativc approach to valuations without simply t-elying on ‘the currc‘nt market V;IIUC formula. Bank linancing continues to he the mayor ohstaclc facing property in~estorside~elopers” (Saito. 1902).

As credit restrictions intensified, growth slowed from almost 5% in the

late lY8Os to 3.5% in lYY1 and a predicted 2% in 1092. At the same time,

domestic savings rates fell as consumer spending reached a 10 year high in

1990. The current account surplus fell from $US.53 in 1989 to $US33 in 1990

and $USlO billion in the first half of 1991. Consequently, Japanese FDI fell to

$USS7 billion in the year to March lY91 (Australia-Japan Economic Institute

Newsletter, September 1YYl). Japanese FDI is forecast to fall to just over

$US40 billion for the calendar year lYY1 (see Fig. 1). However, the real estate

and finance sector experienced a drop of 30% in 1990. and 1991 was expected

to witness a further 30% drop (Australia-Japan Economic Institute Newsletter,

April lYY2). The U.S. still received 43%) of total Japanese FDI in 1991, though

the amount fell by 31 % to $US18 billion (Australia-Japan Economic Institute

Newsletter. June lYY2). The Export-Import Bank of Japan survey carried out


in IYYl forecast ;I 4gnificanl decline in Japanese FL)I thi-ough IYYI and IV)3

(TcJinia. IYYZ).

Japanese bunks are struggling to put themsel\ea in ;I position to mc‘ct the lYY.3

13ank of International Settlement capital adequacy ircquil-cment\ ~#hich \pccit!

that hank capital hacking BLISS reach h “‘41 of total asset\. klnkx arc allowctl 10

count -IS’h of unrealid gains on their sharcholdings towards their capital base.

However. the plunging Nikkei has all hut wiped out these gain\ at a time ~hcn

mounting bud debts. cspccially on loans to property developer\. arc piling up. i

If the Nikkei falls helow 15.600. the following ‘top I, ?‘ J,I ‘IIICXC tlanhs will CC;ISC c p‘

to meet U.I.S. requirements: Dai-ichi Kangyo. Fuji. Mitsubishi. Sanwa, Hank

of Tokyo (Bucincss Week. _ 77 April IYYZ, p. 57). The hanks \\ill lhcrclorc t>c

recluircd to signiticantly restrict new lending and possiblv call in ciisting IOiln\.

Since .lapancsc hanks hold 40% of their assets ovcrscas and account for -III”,,

of global lending. a policy of cnforccd restriction would hil\‘C 4cLcrc impact4 on

international capital Rows and liquidity and reinforce the clown~v:~rrl trend in

Japncw FDI begun in IYYO.

The net profits of the largest industrial corporations and hank\ tell I>\ ;III

average of 16% in the year to March IYY2. Mo\t of thee firm\ c,xpcriencetl thcll

third year in a row of falling profits. Daikyo Inc.. a propcrtv tlc\clopei- with

significant holdings in Australia suffered :I -10% fall in pre-t;l\ pi-ofit in lYYP~)7.

Ministry of Finance official estimates place the hanks‘ non-; ~rt’orming 10;1n5 ;rt

I!‘!,, of total bank loans but the London Financinl Times has cluo(cd ;I \ecrc*t I3;1nh

of Japan report which estimates non-perl’orming loans at lO”,, OI- ;I \taggcrrng

$US500 billion (Australian. I June IYYZ), about the wmc as the total projectctl

cost of the CJ.S. Savings and Loans (‘Thrifts‘) bailout.

Howcvcr. in spite of severe difficulties expcrienccd in the .I;I~;IIICSC linancial

system and corporate sector. I YYZ is witnessing another turnaround in Japan’\

balance of payments. The balance of trade surplus for Fchruar-y and March M ;I\

;I mammoth $USll billion. up 40% on IYY I for- the sonic period. Itxport\ ;~i-C’

forccast to top $US350 billion, up from $US275 billion in IYYO (Bu5incs5 Week.

77 April lYY2, p. 52). The trade surplus for IYY 1 came in at $llSS8 billion. IL141

below the 1YXY peak. up from $USS4 billion in IYYO (Au4tr~~lia-.l;lp~rn l:conomic

Institute Newsletter. May lYY7). Most of this rise was due to low oil price\ and

;I high yen. This suggests that the current account surplus fill retx~uncl to rrccorcl

levels fuelling ;I further round of capital outflows. Whether these llow~ r-ctracc the

paths of Japanese FDI in the IYXOs remains to hc seen.

“In the short teinl. linancial prcssurc\ 111 Ictxuld Ix~nh luI;m~~c \hccI\ 111 .),I~III IIIIICIM 10s

\h;lrp tall\ lrl aswl pl-vx\ rna~ rcclucc outRow\ Irom linarlclal In\titulton\ dnd tolcc

rcpatriatim of fund\ lg some imtitutions. Prc\wre front .l;~p;~nc.~c. lwnk.~~t-\ ~I.I\ dl\o

ICII-cc dive\tmcnt crt cwcrsea\ asxts I>! xmc J:I~XIIXV cc~mp;~nic\. lwl-tlcuI;IrI\ 1.11 the

property arca Howwer. ;I\ long as .Iap~n rum ;I current ;ICCINIII~ w~plu\. 111 IIC~ ICI I),\

.lapm~\e fund\ mu\t hc channclled ah!-oad” (Acw\\ FCI~OII~I~\. I’IOI p I ;I -


NOTES: CHAPTER 2 I. For a discussion of the assumption\ and limitations of data sources on foreign investment used

throughout this study XX Appendix 7. 2. In the latter part of the IYXOs long-term capital exports wt’rc running well above the level of

current account surpluses, offset in part hy rising foreign liabilities. 3. The National Land Agency’s interim report for the first half of 1991. found residential values to

have fallen, on average. hy 2.5% in Tokvo and 18.9% in Osaka. Commercial values had fallen hy I .2% and IO. 1%. respcctivcly. in the two cities. over the same time period. The NLA has forecast that residential values will fall by Y. I% in Tokyo. and 22.Y% in Osaka and 5.6% nationally during calcndcr year iYY2 (Knight Frank Baillicu, lYY2b). Knight Frank Baillicu suggest that the\e arc con\erv;rtlve c\timates and that value\ in some residential arcus of Tokyo and Osaka are 3(MO’% Iowcr than their pcah. In April IYYO. the Japanese government introduced its policy - ‘Soryo Kisei’ ~ of directing hanks to curb their lending for real estate related transactions. This policy was still in place at the end ot IYYI, though \omew,hat relaxed early in IYY2 (Knight Frank Baillicu. lYY2a). Also dampening demand wa the Introduction of a new national land tax law in January lYY2. the 1901 review of official land values (Rosen) on which property and inheritance taxeb are hased and which were anticipated to increase hy 30%. and the build-up of unsold stock in residential apartment\ leading to the expectation of further price falls.

4. It is estimated that 70% of hank loans to property dcvclopers are non-performing (Business Week. 77 April lYY2. p. S6). Sumitomo has the largest exposure to the world’s largest developer, Olympia and York which. in early lYY2 was struggling to rc-finance debts of US$I? billion. Dai-lchi Kangyo aI\o has heavy exposure to Olympia and York.

5. The possible implications for Australia of future development\ arc explored in Chapter 5. helow.

CHAPTER 3

Patterns of Foreign Investment in Australia

Foreign investment has always been an important factor in Australia’s

post-colonisation development, providing capital resources for expansive economic

growth in the long term and covering deficits in our halancc of payments situation.

in the short term. In general, though with a lag. foreign investment patterns

have tended to follow trends in Australia’s international trading relations. Initial

dependence on British trade and capital partly gave way to U.S. dependence

after World War II and, over the last decade, the Japanese connection has greatly

Source: Australian Bureau of Statistics, Foreign Investment,

Australia. cat.no. 5305.0

Note: fieures as at 30 June

3oo’ooo r __ I-Official Sector

- - Direct Investment 250,000 - . . - * - Portfolio Investment /..-

. . -Total Foreign Liabilities R-’ g 200,000 - ..-..

._ ..- = 0

2 150,000 - ..M.’ 100,000 - ..I . . . .-.-. _.-. C. 2

I ./.- /-- ./*- /-

50,000 3_.-.- _/c- --

_--- ___- -- _-

____-_-----

0 I I I __- I 1984 1985 1986 1987 1988 1989 1990

200.000 - ___ Equity

- -Total Foreign Debt - . -Official Sector Debt

150.000 - /@ . . -Public Sector (non-official) Debt MM

E -Private Sector Debt /) ._

.,._.-.----_.~~~~ e&e *s : ‘, . . - . . - . . _ .

-a+ 0 I I I I I

1984 1985 1986 1987 1988 1989 1990

FIG. 6. Total foreign liabilities, Australia.

131


strcngthencd. By the time Japan (a4 notccl abow) C;IIIIC to dominate international

capital flows. it had alt-cad) cmergcd as Austt-aliLt‘\ largest export market.

However. although Au~trali;t‘s rcliancc on torcign investnwnt is long-established.

the &XXI& of the 1WOs prociucccl ;I C~LI:III~~IIII Icap. Total foreign liabilities have

trebled since I%-!. with direct invcstmcnt and public ;itid pt-i\xtc borrowing

all increasing at roughly the utiic’ rate (see f;ig. (1). Annual rates of foreign

invcstnicnt pc;ikccl in the hcatlv ci;tLs of the national ccononiic boom in 19X8 and . I989 (see Fig. 7).

By .Iunc IWO. alw1rt ho ‘%, of total t’orcign liabilities wre held ;I> dcht: i.e.

accutnulated i’ot-eign debt totallctl $A I55 billion. almost I’our-time\ its le\cl in

19X-l. Whereas general government borrowing contributed substantially to this

figure in the mid- 19SO\. tight Federal Goccrnnicn1 budgets and controls over State

government cxpcnditure in the latter part of the decade rcduccd total govcrnnicnt

rcliancc on overwas loan lin~~nce signiticarltl!,. This was offset by the recent hcaw

dependence of governtnenr tt-adinf cntcrprisc4 on foreign lo~rns and. in particular,

6 .- 5 z t.9

<

30,000

25,000

20,000

15,000

10.000

5000

n

Source: ABS, Foreign Investment Australia, cat.““. 5305.0

c

-_ - Total Foreign Invesrmcn~ - - Official Sector Investment - - - Duccr tnvurment --.

- . - - Portfolio Investment c4

c c -- \

\ .

4* cd \

/( .@

.) .. A’

/..-“...\

0% .- ..-

..C.. ./‘I.

..C’ . . ‘.. A- ---x-_

P -Y-.-s

_.-*

I I I .‘r -- ”

1984 1985 1986 1987 1988 1989 1990

c -we Equdy - -Total (annual) Foreign Debt - . - Offrclal Sector Debt

20.000 . . - Puhllc (non-official) Sector Debt c - Private Sector Debt 0 --I

0 -\ / -+

2 15.000 -0 .-r ._ / = /

3984 1985 1986 1987 1988 1989 1990

E‘IC;. 7. .\nnual foreign investment in Austdia.


Source: ABS. Foreign Investment, Australia. cat.no. 5350.0 Note: scpxstc figures no, available for Gow. Trading

- - - Commonwealth Govcmmcnt - - State Governmenu -. - Commonwealth Govt. Trading Enterprises *. - Stale Govt. Trading Enterprises

- Privaw Trading and Financial Enterprises .----- Total Borrowing

..-.... ..**-.......*_.*

-.. _..- a... . ..* . .

..-- -.-..

-* . .* . -5000 I I I I .G *)

1984 1985 1986 1987 1988 1989 1990

FIG. 8. Annual foreign borrowings in Australia by public and private sectors.

by private sector borrowing abroad. The latter trend was associated with the late

1980s boom in takeovers and mergers and the explosive creation of new financial

instruments (e.g. currency swaps) (see Fig. 8).

By the end of the decade the cumulative balance of foreign direct investment

exceeded $A90 billion, with the annual flow peaking at $A10.5 billion in 1989

(see Fig. 7). In the period 1987-1990. more than $A30 billion of direct investment

funds flowed into the Australian economy.

Source: ABS. Foreign Investment. Australia. cat.no. 5305.0 _-- Mining - - Manufacturing

30,000 -. - Finance. Property and Business Serwces . . - Other Indusules

25,000 - - Total Foreign Investment

-5000 I I I I I I

1984 1985 1986 1987 1988 1989 1990

FIG. 9. Annual foreign investment in Australia by sector.


During the IYXOs. total foreign investment fous to Australia s~\itchcd stl-onglb

out of more traditional destinations in the mining and manLlfncturing hector> anrl

into Finance. Propert! and Business Scr\ices. Manufacturing pc~~keci at just uncler

$A5 billion in IYSY. heforc mo\~ing into negati\,e figures in IWO, the Iin year ot

the receGon. Finance. Propcrt!, and Business Scr\ice\ peaked at SO”,, of total

inflow in IYXY and in IYYO Ma4 still running at more than SA 15 billion (WC Fig. Y)

Direct inwstnient accounted for mo5t of the intloc\ to mining ant1 ahout

40% of manLIf~icturingi~ in\,c\tmcnt. Howc\er. in\estnicnt in Finance. Propert>

and Business Sewiccs M ;I\ l”-‘dominantl! pal-t~~)lio-hascd. retlccting thu ol-iginal

destination of ~LIIIC~S to financial institution\ (sc’c Fig. 10). The Australian HIJI-cau

of Statistics data do not idcntif) to bvhoni ~ i.e. for I\ hat pu~-pcbc\ -~ thcrc tunds

wcrc on-lent in Australia. Morco\,er-. the data do not allow. further disaggregation

to focus on the propcrt) sector. ywcificall!. Tlic I3ureau has ;iI\o indic;ited that

these data scriouslv underestimate owrsc;l\ property invcstmcnt in Auhtr-;lli;l

hecausc only that inwstnicnt hy incorpor;itccl torcign br;inche4 01. crltcrprisc\ is

included. I’ropcrtk in\cstmcnt 11~ non-rcsidcntz is ~scludc~l. (‘on~eqwtitl~. lhc

Bureau cstiniate\ that. ;I\ ;it ?Olh Scptemher IWO. official ligui-cs understate

the cumulative le~cl of t’or-cign propert! in\.c\tment by $A>.> billion ( ACCC\\

Economics. IYYI. pp. 10-17). These data delicicncics arc serious in \,icw of the

aims of this stud!, and the alternative dat;i \ourccs (noted ;ibo\c ;incl pursued 111

the next section) w,hich strongl\ suggest that real cstatc ancl asociatecl arca\ h;r\,c

hecornc the critical dc5lination 01’ .lapanesc direct invcstmcnt 110~4 into Australia.

Hcncc, \vc‘ will have to turn to these altcrrlatiw wut-cc4 in ordc1- IO ITIOI-c closel!

scrutinisc the relc~ant Ilobs ;inJ impact\.

Before tloiug 40 ho\\e\,cr. it ih us~t’ul to cornl,lctc thi\ \kctch of h~~o;rd torcign

investment lmttcrn\ in Austr:ili;i I?\ iilentit\ing the lie\ 4ourcc c’ountrie4. FiguI-e I I

details total invcstmcnt Ilob\ from the three largc\t \ourcc couritrie\ ;~nd

international capital rnarhct4. For- the three >‘car- period IYXS-IWO. Jap111 clear1~

Source: ABS. Foreign Invesunen~. Australia. cat.no. 5305.0


Source: ABS. Foreign Investment. Ausrnlia. cat.no. 5305.0

U.S.A.

U.K. JapNl 0 Interoa~ional Capital Markets / *’

_*

-4000 I I I I I I 1984 1985 1986 1987 1988 1989 1990

FIG. 1 I. Annual foreign investment in Australia by major source.

emerged as the major source of funds, supplying three-times as much as either the

U.S. or U.K.

The rapid growth of dependence on international capital markets in the latter

half of the decade exprcsscd the heavy reliance of corporate Australia on foreign

debt finance in the wake of deregulation of the Australian financial system.

Australian trading enterprises. public and private, were able to tap Eurodollar

markets in a financial environment of floating exchange rates, relaxed exchange

controls, the removal of direct government controls over interest rates and lending

policies and the aggressive operation of new overseas banks in Australia and the

counter-penetration of Australian financial institutions overseas.’ In the 1983-1989

period. only Japan increased its share of total foreign investment in the face of the

flood of portfolio funds sourced in the world’s major capital markets (see Fig. 12).

The proportion of capital supplied by U.S. and U.K. investors each fell from

about a quarter to less than a fifth. Hence, during the 198Os, in the context of

Source: Access Econmics, 1991. p.20

30 Note: figures represent pcrccntagk shares

”

U.S.A Japan U.K. ASEAN Int. Capital Markets

FIG. 12. Changing shares in total foreign investment in Australia, 1983-W.


Source: ABS. Foreign Investment. Australia. cat.no. 5305.0 12,000 r

_ _ _ U.S.A. / - - U.K.

/’ ..- Total ,.A”

..’ .- ..-

/.

/ I I I J 1984 1985 I986 1987 1988 1989

bI(;. 13. Annual direct fimign investment in Australia b! major source rountrics.

domestic tinancial deregulation. increasing international tinanci~il intcgralion and

intensifying short-run halance of paymcnt5 clisequilihria. Australia clircr4tied it\

sources of foreign invatment and reduced aome~:hat it\ traditicmal rcliancc OII the

two major source countries.

The picture i\ even clcarcr in the C;IW ot riircct inwstmcnt tk)~v\ (xx Fig. I.3

and Table 5). By late in the decade Japan emergecl ;IS the major investing nation. supplying almost $A4 billion in the boom vcars. I9)XH-lW~. (‘consequently. LbhiIc

U.K. investors barely maintained their historicall? strong position in Australia and

U.S. investors reduced their share 17~ ;I quarter. o\cr the latter half of the decxlc.

Japanese investors almost doubled their share to I_ “IO of total direct inve5tmcnt

Icvels. to stand at just under $A 10 billion in June IOX0 (Acce~ Economics.

1991, p. 23).

However. this increasing pracncc ot and public dctxrte OVCI- J~I~;II~CSC

investment needs IO bc qualitied by sc\,c‘raI factors. First. in spite ot the I-CCC‘III

burst of direct invcstmcnt, Japan still ranks third. ucll behind the U.S. and Il.li.,

;IS ii source of total funds. Second. Japanese torcign capital inflo\\ to Australia

has been dominated I>? portfolio rather than direct investment. fHencc. portfolio

investment (much of it short term) comprise\ 70 “,, of .lapancw holclinga in I W).

TABLE: 5. Shares in level of direct investment in Australia (‘%I share!


as opposed to 47% and 54% for the U.K. and U.S.. respectively. Third, and

consequently, Japanese levels of foreign ownership and control of Australian

industry are very limited. by comparison with U.S. and U.K. investors (Access

Economics, lYY1, pp. 25-26). Finally, and in contradistinction, the jump in

Japanese direct investment in the late 1980s did represent a distinct break with

earlier patterns of investment and suggests that the strong concentration of such

flows in the real estate and tourist sectors may

on Australian development than the aggregate

is to this question that the next section turns.

have had a much stronger impact

picture outlined above suggests. It

NOTES: CHAPTER 3 1. Consequently. the $A became the fifth or sixth most heavily traded currency in global capital

markets during this period.

CHAPTER 4

Japanese Direct Investment in Australia: The Lure of Real Estate and Tourism

“Subsequent to deregulation in the banking and finance sector in 1984, Japanese corporations having interests in financial services (e.g. banks, securities companies and life insurance companies) made major investments and built up a significant platform in Australia. By the end of the decade inflows of Japanese capital had shifted generally into the financial services sector, as well as into the real estate and construction. resort development and tourism industries” (Edgington, 1991, pp. 73-74).

4.1. INTRODUCTION

The rapid increase in Japanese FDI throughout the 1980s resulted (as noted

in Chapter 2, above) in a pronounced swing to financial services and real estate,

particularly in the case of Australia which emerged as the third most important

destination country after the U.S. and U.K. The level of Japanese FDI in

TABLE 6. Japan’s direct overseas investment by region and country (as of March 31, 1990)

(US$ million) FY 1989 FY 1951-1989 FY 1989 FY 19Sl-1089 Amount total (.I) Amount total (a)

U.S.A. 32,540 Canada I362 North America. total 33 .YO2 U.K. 5239 Luxembourg 654 Netherland\ 4547 Gcrmany~. F.R. 10x3 France 1136 Switzerland 397 Spain 501 Europe. total l-l.XOX lndoncsia 631 Hong Kong 1898 Singapore I YO? Korea. Rep. of 606 China 43X

104.400 Malaysia 673 4593 Taiwan 4Y4

108.993 Thailand 1276 IS.793 Philippines 202

5383 Asia, total 8238 10,072 Australia 4256

3448 Oceania. total 461X 2891, Saudi Arabia/Kuwait 32 1829 Middle East. total 66 1546 Panama 2044

34.072 Brazil 349 10.435 Cayman 165X

X066 South America, total 5238 5715 Liberia 643 3x54 Africa, total 671 2474 Total 67.540

2507 2285 2OXX 1322

40,465 12,3Y4 13.033

1415 3404

I‘t>YO2 SO46 6743

36.855 430 I 5275

253.X96

(a) Figures arc the accumulated value of approvals and notification Source: Ministry of Finance. Japan.

139


Australia had risen to $US12.4 billion as of 31 March IWO. representing 3.t(% of

worldwide Japanese FDI of $US254 billion (see Table 6).1 The ABS data suggest

that total Japanese FDI at 30 June I989 was $A9.7 billion or $Al5.2 billion when

the Bureau’s own estimate of excluded Japanese property ownership in Australia

is added. This latter figure compares fairly closely with the Japanese Minixtrh

of Finance U.S. dollar estimates just quoted. allowing for the slightly different

time periods. exchange rates and the different measurement procedures LISCCI (WC

Appendix 2).

Most of this investment in Australia accumulated over the past 5 years. Annual

Japanese FDI in Australia totalled $US2.55 billion in 1991, or 6.1% of Japan’s

global total. Kcal estate accounted for 49 I “6 at $US 1.35 billion. down 6% from

IWO, far less than the overall fall in Japanese FDI to Australia of 30”/,, for that

year. In 1991 Australia accounted for 14% of Japan’s worldwide real estate

investment (Australia-Japan Economic Institute Newsletter. June 192).

The strongly biased sectoral pattern of Japanese investment in Australia

is evident in Fig. 14. By comparison with the rest of the world. Australia has

attracted a disproportionate share of Japanese FDI into the mining and real estate

35

30

25

20 %

15

10

5

0

60

50

40

30

20

10

Source: Japanese Ministry of Finwxe: quoted in Access Economics (1990)

Real Estate

FIG. 14. JapaneSe direct investment (“/o cumulative share).

Source: Japanese Ministry of Finance; quoted in Access Economics (1990)

”

Manufacturing Mining & Rural Bank & Ins Real Estate Other Serwces

FIG. IS. Japanese direct investment, 70 share IYXY-90.


areas. The concentration in mining is long established, in real estate very recent,

as is illustrated by Figs 15, 16 and 17. In 1988-89, property investment exceeded

50% of total Japanese inflow. In the 2 year period to March, 1990, almost

$US3 billion flowed into Australian property. Total Japanese investment in this

sector in March 1988 stood at less than $US400 million.

The same picture is painted by the ABS data (see Table 7) which shows a

large proportional gain in the Finance and Property sector in the latter half of the

198Os, at the relative expense of manufacturing and wholesale and retail trades

(Agnew, 1992).

Daly and Stimson (1992) have established the breakdown of almost

$US2.7 million invested in Australian property over the 1986-90 period (see

Table 8). About 70% of this investment relates to tourism projects and activities,

which, as noted below, is closely connected to symbiotic investments in tourist

Source: Ministry of Finance. Japan Note: year ending March

4000 r

- Annual Real Estate Investment

.(’ g 3000

- - - - ’ Cumulative Investment since 1951 .’

._ ; .@ . 2000 -

*o

z *@

3 1000 -

0 I 1987 1988 1989 1990

FIG. 16. Japanese real estate investment in Australia, 1987-90.

Source: Ministry of Finance. Japan

5000 Note: year ending March

--- Mining - - Manufacturing

4000 - * - Banking/Insurance a * - Services

- Real Estate

3000 .----- Total

FIG. 17. Japanese (annual) direct investment in Australia, 1987-90.


TABLE 7. Japanese direct investment by sector (% share of total)

‘I-LGal 776X 100.0 Y7II, 1011 0

Source: ABS Unpublished data (quoted in Access Economics. IYYI)

TABLE 8. Value breakdown of Japanese purchases hy type of propert?

I YXh

I IY.5111

I lY5m

I YS7 I YX,S

I hm 57h.Y I111

107 01&11 ~J7.(15m

i5.Irn 7x.175m

15lhll

12.007n1

;.Slll

35.75111

7s St11

I 3

0.7h

!3).Yll m IoYo.ox5n~

T01“~1. ‘ml Y5Xrr1

Sour-cc: Daly and Stimson ( IYY2).

services and strongly spatially concentrated in central Sydney and the coastal

regions of northern N.S.W. and Queensland. Research hy Jones Lang Wootton

over the same period indicated a similar picture. though with ;I heavier empha\ia

on Japanese involvement in the office sector (see Fig. 1X).

This surge of Japanese property investment in the latter part of the IYXO\

both responded to and fuclled the speculative opportunities characterising the

Australian construction sector in the emerging deregulated climate. Private

commercial construction. in particular, picked up fairly quickly after the IYXILS1

recession (see Fig. 19). This was particularly so in the case of new and refurbished

office construction and hotels. though the latter sector momentarily stalled in

Japanese Property Development In Australia

Source: JLW Research

143

Hotel/Resort q Retail q Residential

FIG. 18. Japanese property investment in Australia by type, 1986-90.

Source: Australian Bureau of Statistics. Building Activity, Australia cat. 8752.0

20,000

15.000

0” ._

‘: 10,000

d tft

5000

0

Total Non-Residential Construction

.a Prrvatc Non-Residential Construction

FIG. 19. Non-residential construction in Australia. 1980-1990 (current prices; year ending 30 June).

Source: Australian Bureau of Statistics. Building Activity, Australia cat. 8752.0 6000 r

5000

4000

1000

- - - N.S.W. _ - - Victoria

_.- Queensland - - - Other States and Territories

- Australia

is80 1981 1982 1983 1984 1985 1986 1981 1988 1989 1990

FIG. 20. Office construction in Australia, by state, 1980-1990 (year ending 30 June).


Source: Australian Bureau of Statistics. Building Activity. Australia cat. 8752.0 1400 r

- N.S.W. 1200 - I-- Victoria

_.- Queensland

1000 - . . - Other States and Terntones

g - Australia

._ z

800 - ._ E

d 600 - fA

400 -

19x0 19x1 19X2 1983 1984 19x5 1986 19x7 198X 19x9 1990

PI<;. 21. Hotel construction in Australia, hy state. I9tWIYYO (?ear ending 30 June,.

1987 (see Figs 20 ;md 7 I ). I‘hc significant role of foreign (cspxiallq Japancsc)

investment in all this can he further underscored by considering data prwidcd

by Australia’s Foreign Investment Review Board (FIRB) summarising prop~wd

foreign investment projects (SW Appendix 2 for further dctailc).’

40 Source: Foragn Investment RCVICW Board. Annual Reports. + -ION years

n Real Estate q Manufacturmg 0 Total Expected lnvcsrmcnr

19X6-87 1987.88 19X8-89 1989.90

FIG. 22. Foreign investment proposals by sector. Australia (year ending 30 June: tourism data nut available in 1986-71.

Source: Forann Investment Rcwcw Board. Annual Rcpor~s, various years

1987.88 1988-89 19X9-90

FIG. 23. Foreign investment proposals from major source countries. Australia (year ending 3U June).


The total value of foreign investment proposals peaked at just over $A30 billion

in 19X8-89. by which time real cstatc and tourist-rclatcd projects predominated

(see Fig. 22). By the end of the decade, Japanese investors were more active

in Australia than investors from the next three most important source countries

together (SW Fig. 23). Japanese dominance was especially pronounced in the

two leading fields. real estate and tourism (see Figs 24 and 25). The relative

concentration of Japanese investment across various sector is illustrated in Fig. 26;

the rclativc dominance of Japanese investment in each sector is depicted in

Fig. 27. Both graphs clearly demonstrate the overwhelming lure of real estate and

tourist projects for mobile Japanese capital.

Most of the foreign capital flowing into the Australian real estate sector

is carmarkcd for development rather than the acquisition of fully developed

properties. This is particularly the case in the residential sector. due in large

part to increasingly restrictive Federal government controls imposed on foreign

Source: Foreign Investment Review Board. Annual Reports. various years 5

4

5 ._ 3 = ._ c < 2 *

1

n ”

1987-88 1988.89 1989-90

FIG. 24. Foreign investment proposals for real estate projects by selected countries (year ending 30 June).

Source: Foreign Investment Review Board. Annual Reports, various years

rJJapanere Invesment

_ q Other Foreign Investment

-

- 1987-88 1988-89 1989-90

FIG. 25. Proposed Japanese tourist investment in Australia (year ending 30 June).


Source: Foreign Investment Review Board. Annual Report. 1991

Note: Total Investment proposals for year ending June 1990 of

AS8.42 billion n Mining

q Manufacturing

q Finance/Insurance

q Tourism

Cl Other Services

q Real Estate

q Other

FIG. 26. Japanese foreign investment proposals hy sector. IYW-90.

Source: FIRB. Annual Report. 1991 12,000 r

c n Japanese Investment

10,000

cl Total Investment

FIG. 27. Japanese share of total foreign investment proposals by sector.

dwelling purchases in the latter part of the 1080s. Commercial Jcvelopment tended

to experience more volatile capital inflows than residential. with nevv~ proposals

peaking at over $A7 billion in 1988-89 (SW Fig. 28).

The strong spatial concentration of foreign property inv,estment in N.S.W.

and Queensland is evident in Fig. 29. However. while just ov.er 50°4 of N.S.W.

real estate investment was concentrated in new commercial development in the

1988-90 period, about two-thirds of Queensland’s share was concentrated in the

new residential sector (FIRB Annual Report, 1991). Intcrcstingly. in the USC

of commercial development. Victoria was far less dependent on foreign capital


s owcc: FIRB. Annual Report. 1991

m Developed Residential m A$0.31mbill.

Residential for Development AS4.82 bill.

FIG. 28. Foreign real estate proposals in Australia by type (198849).

Source: FIRB. Annual Report. 1991 Note: excludes acquisition of real estate related businesses

10 r n N.S.W q Victoria q Other

s q Queensland q W.A.

6

1988-89 1989-90

FIG. 29. Foreign real estate proposals in Australia by state (1989-90).

- in particular, to finance the office building boom in the 1987-90 period (see

Fig. 20, above) - than N.S.W. or Queensland; all property proposals totalled

only $A770 million in Victoria in 1989-90, compared to about $A4 billion in both

N.S.W. and Queensland (FIRB, Annual Report, 1991).’ Thus, the foreign impact

in Victoria has been both smaller and more selective than to the north. In order to

trace the nature of this influence in more detail, the following section concentrates

on Melbourne’s central city office boom and collapse during the second half of

the 1980s.

4.2. MELBOURNE BOOM, MELBOURNE BUST: THE CASE OF C.B.D.

OFFICE DEVELOPMENT4

“The real dog is Melbourne C.B.D.” How bad is it? “Oh. I think It’s horrible” (Liquidator of Farrow Group of building societies. quoted in The Australian Financial Review Magazine, October 1992. p. 40).

Baillieu Knlghl Frank Research Source: Reserve Bank of Australia, “Bullcm” ABS cat.ao 6401.0

t

- 90 Day Bank Bills 25 ___ IO Year Treasury Bonds

_..-.. CPI Change. Yea: ro Quarter

0 1 ’ I ‘i.i I I I I i

1980 1981 1982 :9Y3 1984 1985 1986 1987 1988 1989 1990 1991

bI(;. 31. Interest rates. Australia.

Japanese Property Development in Australia 149

of commercial buildings in 1988 reflected the intense speculative pressures at

work (see Fig. 30). Underpinning these forces lay the ‘easy money’ policy of the

Federal government which kept interest rates down in 1988 in order to protect the

real sector from the extreme volatility of local and overseas capital markets (see

Fig. 31). The (lagged) dependence of the general property cycle on interest rate

movements in the 1980s is illustrated in Fig. 32.6

Throughout 1988 and 1989, short term domestic interest rates rose significantly

as the Federal government fought to contain a soaring current account deficit

and persistent inflationary pressures. As demand faltered and yields softened,

property markets began to reflect the perception of massive oversupply in the

pipeline. New construction investment rapidly fell (see Figs 30 and 33) though

pipeline effects ensure that large additions to office stock will result well into the

1990s. The amplitude of the boom and its aftermath. in the case of C.B.D. office

development, is apparent in the movements of rental levels and yields for this

sector. with Melbourne experiencing less extreme perturbations than Sydney (see

Figs 34 and 35; for Sydney also see Daly and Stimson. 1991b).

Bailleu Knight Frank Research Source: Reserve Bank of Australia. “Bulletin”

1000 - - Real Estate Transfer Expcnscs (Seasonally Adjured. 51984/U)

___ Real Short Tern, interm Rate (90 Day Bank Btlls Less CPI) 900 -

800 -

1950 1981 1982 1983 1984 IRS5 1986 1987 1988 19S9 1990 1991

1 l2 1 ‘0 1 4 6 2 8

0

(21

FIG. 32. Property cycle vs interest rates.

Baillieu Knight Frank Research Source: Australian Bureau of Statistics

600’ ’ ’ ’ ’ ’ ’ ’ I I I I M88 S88 MS9

J88 DS8 S89 M90 s90

189 D89 I90 M91

D90 J91

%

FIG. 33. Building approvals, offices, Australia.


Baillieu Knight Frank Research

._.__. Brisbane _. - Adelaldc

4 ’ I I I I I I I I I I I I 1986 1987 1988 1989 1990 IQ91 1992

FIG. 34. Mid-range prime C.B.D. office yields, IY86lYY2.

800

700

“x 600

2 500

o- 400 m 2 300

200

100

Baillieu Knight Frank Rescarch

Note: Renu are gross except Perth where they are yuored ner

E _ Sydney . ..m.. Bnsbane _ _ Adelaide -mm Melbourne _ - Perth

t ___----------______,

_ )_ _ -

__.-- . . . . __,-- ~ -. c _A = .x-c = r-,1. =

J I I I I I I 1986 1987 1988 1989 1990 1991 1992

FIG. 35. Mid-range prime C.B.D. office rents. IY86-IYY2.

However, the severity of the boom and. in purticular. the bust. is most

dramatically illustrated by changes in vacancy rates. By the end of IYYO. vacancy

rntcs for C.B.D. offices in Sydney and Melbourne were around 15’!4. By earl)

lYY2 the rate had jumped to 24% in Melbourne. forecast to rise to 27% in lYY4

(see Fig. 36). In fact. the real tigure may have already hit 30% when allowances

arc’ made for stock that has been withdrawn for refurbishment or demolition.

Forecasts of net absorption may also be optimistic as tenants. drawn by the

recession-induced prcssurc to rationalise overheads and technological advancex

which reduce numbers of cmployccs and space demands per employee, cutback

their total demands for space. A study by Colliers Jardine rnnkcd Melbourne in

the top IO cities in the world with respect to office vacancies (Ryle. IYY?). B>

January lYY2. 775.000 square metros of office space were vacant in the C’.B.D..

with the highest vacancy rate for prime space (Graham. lYY2). Building owner\

arc offering rent-fret periods of up to 4 years on IO year Icases, suggesting that

markets do not expect Melbourne’s offcc scctor to noticeably improve until

lYY6 (ihid.). The situation with respect to ww C.B.D. office space in Melbourne

is depicted in Table c). The X00.000 square metres of sp;tw coming on lint in

IYYO_lYYI has placed scvc’rc: competitive pressures on owners of older buildings

seeking to retain or replace departing tenants.

25

20

1.5

%

10

5

0


Sublease vrc~~y

- q Direct vacancy

(Sublease figures available from 1986 only)

FIG. 36. Vacancy rates, Melbourne C.B.D. (half yearly).

TABLE 9. Melbourne CBD office construction and absorption

Year Number of Net leased properties area (sq.m.) % Leased

1YYO 25 391,261 42 1991 13 393,962 56 1992 2 127,000 100 19Y3 33 826,780 16

Source: Baillieu Knight Frank. 19Yl. Note: Of the buildings due for completion in 1993, only one was

under construction in late 1991. Many of the remaining 32 planned will he shelved or scaled down in the light of the depressed property market.

Daly and Stimson (1991b, pp. 12-13), following Seek and Dickinson (1990),

point to both the similarities and contrasts between the property downturns in the

mid-1970s and early 1990s. Similar are the impact of high interest rates, the rash

of post-boom company failures in the development and finance industries, rising

vacancies and negative real rental growth. The differences. however, are more

interesting.

(1) The current downturn in the Australian economy is far more serious,

second only to that in the 1890s and 1930s. The global economy is in

crisis after almost two long decades of relative stagnation punctuated

by short-lived speculative booms. In the 1970s the Australian economy

was still partly cushioned from the impacts of global economic crisis

and restructuring, enjoying buoyant commodities prices and high tariff

protection in an international trading and finance environment still

experiencing the (rapidly) declining hegemonic influence of a U.S.

capitalism forged just after World War II and the steadying financial

152

(4)

(5)

(()I

(7)

Progress in Planning

controls ot the Kescrve Hank. Austraii;t’\ g-cater integration into the uor_Id

economy during the past dccaclc. t’acilitatetl by hnancial dcrcgulalion ;md

the partial implementation of’ the ‘IcwI playing field\’ philosophy, ha> ni~ant

that property markets have lxcorne much more \~olatile and subject to the

rapid movements of capital through the major capital niarkct4 of’ the w~rlcl.

The C‘.B.D. is Its\ dominmt a\ ;I IOCII~ IOI- ofCce cmplo\mcnt than Ixforc.

In 19X9. onI\, 50% of office ~\or-kc1-5 ~~orkcd III tlic (‘.B.I).\ 01 Mcll~c~~~rn~~

and S~dlK!). as oppowl to 7O”C> in lcJ7fl (Dal\ ;incl Stini\on. 1991 13. p. I.;).

Offices arc following the gencrai pattern of cmploymcnt il~ccntrali~ation

charactcrisins metropolitan cle\clopment o\‘cr the past t\\o tlccadc\.

Asaociatcci with spatial ciccentr~llis~ltioi~. there arc signiticant ch;~ngc~ in the

composition of office dcmancl. The New Right attack on ‘Big Govc~rnment‘.

hacks-d by the halance of p!~ments ccm\traint. has \ccii ~c)vernmcnt

ofticc demand fall in relation to total ckmand. as (‘oiiin~~~~i~~c~iltli 2nd

State agcncics ham \ought to ratic~naliw operation\ and tI-im cxpcnditurc

increases. High demand in the Iatc-cightics office hoom M’X dri\cn llv the

rapid rise of international prociucci- \cr\ ice\ in the linancc~. ;iccountin~ 2nd

Icgal fields. cspeciallq in cnicrging world citie like Syrlnc! and Mclhournc

(Thrift. I%+>. IWS).

Average ‘;p;~cc per office worker ha\ incrc;r\cd I>\ SO”,, I)\CI- the pat

dccxlc. ttowevcr. ;I\ noted earlier. t hi2 trend iii;;! rc\c*!-4c in the 1000s

under the twin impact of tcchnologicat ad\ancc 2nd fin;incial constr-airit.

A range ot’ new property-related linancial instruments -- c.g. sccuritisation

- was introduced following dcrcgulation. a period which has also 4ccn

the explosive growth of IIC’W institution3 -~~ notahl!. li\tcxl and unli~td

property trust4 --- to manage the fleas of tunds into tlic pi-operth \cctor.

The downturn ha\ 1.c~ultccl in ;I radical shakeout. particularl~~ among

unlisted trust\.

The ~-ash of debt-lcvcrcd corporate tahco\crs in the IWO\ ha\ lccl to

the ncctl for ration~llis~rtic,n and re\tructut-in g in the IWO~. I-irni\ with

underpcrforming pi-opcrtl asset> \vill 13 c under inlensc presurc to lift

their performance ;rntl cut clclWqiiit~ ratio\ through 4elc,cti\,c pi-q~crt!

clcvclopnient and di\x.%ment.

For the rcason4 argued abo\,c and in the v+akc of pt-oyasivcl! rclaxetl

government regulation. foreign in\,estor\ Ix_cimc ni;iior player\ in

Australian commercial propcxrty clu1-in 3 the IWOs. The current dump after\

prospects for selective harg;iin-huntirlg I7y cashed up I’oreign inlerc\t\.

cspeciallv from Asia. ‘l‘hcir role and impact in the C;ISC of Melbourne‘\

C‘.B.I>. office sector i4 explored in \vhat tollo\\4.

Table 10 suniniari4cs the pattern of C‘. t3.L). loreign I~intl obncr4i1p in

Melhournc in the edi-I!, Ic~90s. F-orcignci-4 o\\ n all OI- part 01 I02 pi-opci-tic’\, about

Japanese Prope/ty Development In Australia 153

TABLE 10. Foreign ownership of Melbourne CBD property (1991)

Country of investor

100% Majority owned owned

Minority owned

Total site area

Average site area

Japan 20 4 U.K. 20 I Hong Kong 13 1 Taiwan 1 7 U.S. 6 0 Kuwait 0 0 N.Z. 3 0 Singapore Switzerland

I 0 3 0

Nauru 3 0 Other For. 3 1 Total 73 14

0

16

57.56X 47 2214 17.993 1s 782 Il.354 Y 757

7857 6 9x2 1954 2 326

10.454 8 1742 406 I 3 X12 1389 1 463 2742 2 914 2234 2 745 5529 5 1106

123.135 100 1195

Source: Calculated from individual property data provided by Cityscope Publications (19Yl).

5% of the approximately 2050 properties in all. 7 Japanese investors own about a

quarter of the foreign-owned stock, accounting for just under a half of the total

site area entailed. Almost 45% of Japanese ownership (21,000 square metres) is

concentrated in the several properties consolidated to form the site for Melbourne

Central, a $1 billion plus development on the northern edge of the C.B.D. (see

Map 1). Melbourne Central was developed during the second half of the 1980s and is owned by Kumagui Gumi, a large Japanese construction company financed

by Sumitomo Bank (Rimmer, 1990). It includes an office tower of 65,000 square

mctres, about half of which was let in late 1991 and 35,000 square metres of

retail space (Berry and Huxley, 1985, 1992). The lead retail tenant is Daimaru

Australia Pty. Ltd, which is one-third owned by the Japanese department store

chain Daimaru Inc., headquartered in Osaka, and two-thirds owned by Kumagai’s

Australian subsidiary (Australia-Japan Economic Institute, 1989, p. 101). Not only

has Kumagai had to underwrite the rental market for their development, through

a $20 million equity investment in Daimaru and generous leasing conditions. the

company has been forced to maintain ownership of the whole development beyond

completion, instead of their normal practice of on-selling to long term investors in

order to realise capital, repay debt and move onto new development projects. The

fact that Kumagai and its financiers are locked into continuing ownership, despite

severe corporate liquidity problems and a current worldwide strategy of realising

property assets in order to reduce debt, seems largely due to the immense scale of

the investment involved (well beyond the normal horizons of Australian investors),

the location of the project at the previously ‘unfashionable’ end of the C.B.D. and

the seriously depressed condition of the national economy and property sector, in

particular.

In 1990. a 20 storey office building was completed at 350 Queen Street (see

Map 1). It is owned by a holding company formed by one Australian and two


All other foreip owned Japanese owned

Map 1. Melbourne Central Business District.

J~~p;~ncsc companies, the latter king C. Itoh and Co. and Shimizi. The site of

73.5 syuarc mctres was purchased in lYX7 for $25.35 million and now supports a

Iloor arC;I of 23.000 square metres. Itoh is also part owner. along with Hazama

Gumi and an Australian company, of YO-Y8 Collins Street, an office development

with ;I site arca and net Icttahle space of 2126 and 20,305 syuarc mctres.

I-cspcttivclv.

A 51 level office complex completed at W-I I? Russell Street in 1991 is part

owned (less than 10%) by the Japanese property and resort multi-national, E.I.E.

The exact nati(>nal origins of the other interests involvclci in the ownership vehicle.

I-&china Ptl;. Ltd. arc unclear. The total project cost is $500 million. the site

arca. ?Y26 square metro\ and the floor area, 63,500 square metrcs. A slightly


smaller office development at 360-374 Collins Street has a minority share held

by Ashai Mutual Life of Japan, though the dominant position is assumed by the

Westpac Banking Corporation. In 1988, the Japan Building Project Co. acquired

a 5174 square metre site at 222 Exhibition Street for $135 million. The 30 level

office and retail building was completed in late 1989.

Japanese ownership, most of it recent, is concentrated in the northern and

eastern sectors of the C.B.D. Other foreign interests, especially the longer

established British, are focused more in the south-western corner, the traditional

financial heart of the city. By far the largest project here is the Rialto complex

joining several sites which total over 10,000 square metres. Rialto comprises two

towers (including the tallest in the Southern Hemisphere) an international hotel

and associated retail uses. It was developed and built by the Grollo group in the

mid-eighties and is partly owned by Porkellis Australia Pty. Ltd. a subsidiary

of the Saint Martins Property Corporation. itself wholly owned by the Kuwait

Investment Office. At the south-eastern edge of the city, the Windsor and

Sheraton hotels are owned, respectively, by Indian and Hong Kong interests.

With the prospect of excess capacity in central city property looming large,

foreign interest has flagged and new investment dried to a trickle. As the property

market painfully readjusts downward. further foreign investment in city property

is likely to be very selective during the next few years; bargains rather than brave

new concepts are likely to bc the target.

4.3. REMAKING LANDSCAPES: THE CASE OF TOURISM

“While world tourism has been growing at about 3 or 4% per year. tourism to Australia wcr the past few years has been growing at annual rates of over 20% and it is widely held that arrivals will increase from the current levels of about two million to around live million by the year 2000” (Industries Assistance Commission. 1989. p. iii).

The IYXOs experienced rapid growth in Australian tourism, domestic and

international. Total tourism numbers grew especially quickly in the second half

of the lY)8Os, peaking in the Bicentennial year (see Fig. 37). Thereafter, numbers

dipped. but regained 1088 lcvcls by 1YYl. Annual domestic tourist trips increased

by 10% between 1984-85 and lYXY-90 (Bureau of Tourism Research, 1991, p. 22).

The number of domestic visitor nights grew at an annual rate of 2.5% over the

same period (Industries Assistance Commission, IYXY, p. 31). The dominant

position of N.S.W. in attracting domestic tourists was enhanced during the lYXOs,

while Queensland overtook Victoria (set Figs 38 and 39).

The growth of international tourism and its concentration in N.S.W. (read

Sydney) and Queensland is depicted in Figs 40 and 41. By 1990, Japan had

become the major source country, overtaking New Zealand (see Fig. 32). Japanese

tourism is forecast to grow to over one million visitors by the year 2000 (see


Source: Austrdirn Burc~u of Sthrtics. Oversus Arrivals and Depanures. Australia c~t.no. 3404.0

2500

2000

s 8 ‘1500 L VI

-G .;

2 1000

500

0

FIG. 37. Total short term visitor arrivals in Australia, 1971-1991.

Source: BTR Domestic Tourism Monitor (DTM) 18.000

I- 16,000 /- J-

12,000 ‘;; g s

10,000

z 8000 ._ h +

6000

0 NSW WC QLD SA WA

q 1984185

q 1989/90

TAS NT ACT

State/Territory of Main Destination

FIG. 38. Total domestic trips by main destination, 1984/X5 and 1989/90.

Source: ABS (1991) 6000 Total tourism income

1988-89

8 4000 ._ = . .

5 2000

0 LllIlnn NSW QLD WC WA

FIG. 39. Total tourist income, 1988-89.


‘000 Source: ABS (1991) -j 2500

, , , , ,-j 500

1981 1983 198s i 987 1989

FIG. 40. Number of international visitor arrivals, Australia.

Source: ABS (1991) 50 I-

40

30 %

20

10

n NSW QLD WC WA

FIG. 41. Main state or territory of stay by international visitors, Australia, 1989.

Fig. 43). By the late 198Os, Australia was the sixth largest destination country

for Japanese tourists, after (in order) the U.S., Korea, Hong Kong, Taiwan

and Singapore. Although total Japanese tourist numbers declined by 3.3% in

1991, Japanese visitors to Australia rose by 14.2% in that year (Australia-Japan

Economic Institute Newsletter, August 1992).

Although N.S.W. remains the main tourist destination, in part due to the role

of Sydney airport as the country’s major international gateway, the rate of growth

of both domestic and international tourism is highest in Queensland (Daly and

Stimson. 1992. p. 6). Fastest growing of all regions is the central and northern

Queensland zone. where total visitors in 1989-90 almost equalled numbers

attracted to the Gold Coast (see Fig. 44). Cairns, in particular, has emerged

as a major new destination for foreign tourists, buoyed by airline deregulation

nation-wide and the opening of its own international airport. “It has experienced

70% [tourist] growth in each of the years after the 1989 pilots’ strike and has

put what was once a quiet cul-de-sac in far north Queensland on the map as a

“northern gateway” to Australia” (Daly and Stimson, 1992, p. 10). The relative

dependence of the northern resort areas on foreign visitors is reflected in Fig. 45.

Expanding tourist numbers fed off and drove the surge of local and foreign

property investment in hotels, other accommodation and related infrastructure


150

100

50

Source: Australian Bureau of Statistics, Overseas Arrivals and Dcpanurcs

r-

o- 1980 1982 1984 1986 1988 1990

FIG. 42. Short term arrivals hy countq/repion of residence, IYXtLI9YO.

from 19X7 (we Fig5 71 and 21). which was strongly focu~cl on N.S.W. and

Queensland (set: Fig. 46 and Table 11). Overa11. foreiy ownership of Iand

in Queensland accounts for only, 7% of the state b\ ami: ot that. oiilv 2”(a i\

Japanese owned.” Howcvcr. forcipn fl-eehold land o\vncrship i\ disproporti”“~lt~t~

concentrated in the Gold Coast. nearby Albert Shire and (‘ail-ns. Japancw

investors owned A$3.5 billion dollara worth of Queensland in IYYI. accounting

for about 33% of foreign land ownership in the state b> value ( LIaIy mtl Stim\on.

lYY2, pp. I-24). Alternative cstimatcs bq. r\lr.vtrc//itrr~ Hrr.sirros\ puts the iigurc

at A$4 billion. including eight of Queensland’\ nine tive-\tar hotel\ ancl 30”,v ot

Surfers’ Paradise property (Quoted in Kimmer. IYYZ).

The Gold Coast (see Map 2) is situated about X0 km south of Brisbane. both

forming the core areas of the rapidly growing Morcton Ray region. Australia‘s

third largest urbanising area. The Coast’s permanent population of O~CI- ?OO.OOO

is supplemented by up to 150.000 short term visitors during peak tourist pc’riod\

(quoted in Daly and Stimson. lYY2. p. 75). C’onscqucntly. the cmploymcnt

5 19

16

q 19

11

35

1978

3

g 19

19

z 5

1980

=

: g Y

19

81

‘6,

R

1982

z.

_

e g -

1984

19

83

Em

19

85

gFi

1986

o

B

1987

z’

;;1

1988

ag

19

89

g -

1990

,-

c

1991

s;

s T

N T

19

92

.a

1993

h,

8s: g

19

94

1995

‘E

19

96

2 E

1991

19

98

1999

b I

I I

I I

I

1 a 2 6 Y

L 1

I 4

1

1

1916

19

11

1918

19

19

1980

1981

19

82

1983

19

84

1985

19

86

1987

19

88

1989

19

90

1991

19

92

1993

I994

19

95

1996

19

97

1998

19

99

2000

20

01

I I

I

1

t 1


Source: ADS (1991)

H Gold Coast

El Bnsbane

E3 Far Nonh

Cl Central-North

Ia Barner Reef

FI(;. 44. Visitors by region visited. Queensland. 1989-90.

Source: AR.5 (1991) 60 OVerSeaS

interstate

I

Gold Coast Bnsbanc Far North Great Barrw (Cairns) Reef

FIG. 45. Usual residence of visitors to Queensland. 19X9-YO.

TABLE I I. Total value of major tourist projects under construction or firmly committed ($SM or over) as at 30 September 1990

Under construction

state $ million

AC‘T

NSW -1X’

VJC 07 I

OLD .? 2.3 .i

SA 71

WA 6 I TAS NT I17 Total 77x5

Source: Daly and Stimson (lYY2)

“<> ot

total

is.cr

17.J

‘CJ. I 0 ‘J

0.S

I.R IOO.0


3.0

2.5

8 2.0 ._ = s 1.5

2 1.0

0.5

0

Source: Forergn Investment Review Board. Annual Reports.

various years

emainder of Australia

Queensland

1987-88 1988-89 1989-90

FIG. 46. Foreign investment proposals for tourist projects by state (year ending 30 June).

Western Australia

New Sooth Wales

.Melbourne

Sca’e mmm KilometresO 200 400 600 800

t N v L.3UnCeStOll

Tasmania l Hobart

Map 2. Main urban centres, Australia.

rapid urban development without losing control to large, especially foreign,

development interests (Mullins, 1992).

In 1989-90, the total number of tourist nights on the Gold Coast just exceeded

2.5 million, including 322,000 foreign visitors of whom 39% were Japanese (quoted

in Daly and Stimson, 1992. p. 28). The longer established residential building cycle

(see Fig. 47) has been overlayed by an equally volatile pattern of construction of


Source: Daly and St~mson (1992) 6000

Total Approvals

1000

0 ’ 77 a 78 ’ 79 ’ ’ 82 ‘83 ’ 84 ’ 85 ’ 86 ’ ’ 90 ‘91

k FI(;. 37. Gold <‘(vast dwelling approvals and commencements. pw half’ )ear IY77-1991

tourist accolnmod~ltion and niaj01- facilities. the Iattcr including large-wale theme

parks. an international casino, golf courws. key events and integrated tourist

resorts (SW hclow). The r-clativc importance of the (iold (‘oat i\ indicated h\ the

fact that. as at June IYYO. 54% of major tourid devclopmcnts under construction

and ;I third of newly committed and proposccl project4 in Quecnslancl were Iocatcd

thcrc (Daly and Stimson. lYY7. p. ZY). Bv carlc IYY? there wcrc tive five-\tar.

eight three-four star hotels and 1 IO motels and guest house\ operating on the

Coast (ibid.. p. 2).

Japanese investment is. a4 noted above. heavily concentrated in lat-gc.

strategically located. high value and highly visihlc projects. In addition to tiumaga~

Gumi, two other multi-national property groups have heen active. eq’cciall>

in Queensland tourism - EIE International and Daikyo (Kimmer. IWO. IYY?.

n.cl.). EIE acquired the partly complcteci Sanctuary Cove resort on I-lope 141anci.

,just inland from the Gold Coast. in IYXX for $A341 million. Sanctuary (‘OLC i\

an ‘integrated tourist resort’ \et ~1~3 t,y special Act of the Queensland Parliament

and comprise5 two I8 hole golf courses. retail village. hoat marina. ti\,c-star

international hotel and provision for ?OOO luxurv dwellings. A IICM dc\~elopment

of equal proportions 2nd mix i\ currentlv being constructed nest door to Sanctuar\

Cove hy Shinko. ;I rival Japanese property group. In order to fa5litnte OI

‘fast-track’ such large-wale projects. the conser\~ativc Queensland Government ot

Bjelke-Petersen passed the Irltrpxtd Resort Ik~doprm~r~t Ac,t. IYS7. obviating

the need for site-spccitic special legislation (as in the cast of Sanctuary Cow)

and by-passing many of the normal planning and assessment procedures for- land

development (see Craik. IYY I and Chapter 5).


By 1989, EIE owned two of the 1.5 completed golf courses on the Gold Coast

(Rimmer. 1992). Indeed, Golf Course developments, often integrated with other

tourist facilities, have proliferated briskly, as Figs 48 and 49 illustrate. Japanese

leadership is obvious here and is not accidental but part of a long-term global

investment strategy on the part of the developers and their bankers which has

seen the massive investment in and speculative development of golf courses

in the Japanese archipeligo exported to the West Coast of the U.S., Hawaii

and the Pacific. The general economic conditions driving Japanese foreign

direct investment noted above (Chapter 2) have been reinforced by the special

speculative dynamic surrounding the securitisation of golf course property and club

memberships in Japan to fuel the outward drive to cover Australian and other

landscapes in fairways and greens (Rimmer, 1992).

“In short. the golfing phenomenon is more supply-side driven than it IS in response to increased demand (although that too has increased. and there were an estimated ten million players as of the end of 1988). And it is from the castles of money built around the redoubts of golf in Japan that much of the expansion into the tourist and resort industries around the Pacific Rim, especially Oueensland. is financed” (McCormack. 1991, p. 125).

By early 1992, Japanese interests owned nine completed courses. five of the six

under construction and 11 of the 39 awaiting approval. Many of these courses are

centrepieces for integrated tourist developments.

“Planned over 10 years these projects. incorporating land, residential accommodation and marinas. will [each] be worth more than $A500 million on completion - a reflection of the patient money syndrome under which Japanese buyers are willing to purchase for future capital gains” (Rimmer, 1992, p. 13).

Of late, Japanese patience seems to be wearing thin. Pushed by their bankers.

in the face of collapsing property and asset values and the domestic Japanese

constraints noted earlier, major developers like EIE. Daikyo and Kumagui Gumi

are reassessing and attempting to rationalise their property portfolios in Australia

and the Pacific. Daikyo, which owns virtually all the integrated resorts and major

hotels in Cairns (see Daly and Stimson, 1992) and has heavy investments in the

Gold Coast, is being particularly hard-pressed to sell-off Australian property assets

in order to reduce debt exposure, in the wake of the collapse of Japan’s ‘bubble

economy’. EIE’s lead banker, the Long Term Credit Bank of Japan, took over

direct control of the group’s asset rationalisation program in 1991.

The highly volatile wash of Japanese investment into and out of selected

Australian real estate projects during the last 10 and, especially, 5 years has

clearly wrought significant changes in the social and economic landscape. The

next chapter attempts to summarise these effects before turning to an analysis of

possible futures.


Pimpamo River \z i

/ Nernng River

/ Sdpphrrc Ldkcs 0

Source: Rimmer (1992)

G

Currumbrn Creek


/ / //

w Existing golf courses

Approved

tzl Approval pending

lzl Under construction

Coomern Rive he Spa

-33 Bu:lcigh Itcads

Tollebudg !(

Palm Beach

Currumbtn Cre

Source: Rimmer f.1992) I

FIG. 49. The golf status plan for the Gold Coast, April 1991.


NOTES: CHAPTER 4 I. That ligurc\, hased on Japanew MInktry of Finance data we bery conwrvatwe since thq

mc’aurc the accumulated value of approvals and notilications and exclude rctaincd earnings and marhct revaluation d awzt\ (see Appendix 2).

7. For a further dixwskn of the Ggnificancc of these investment patterns. we Berry and Huxley (1992) and Chapter 5, helou

.3. Thi\ wapchot picture. howc\cr. mice\ partrcular large one-oft project\ carried out enrlwr tn the decade, the notable cxamplc being ‘Melbourne Central‘. a $I billion integrated office and retailing project c:trricd out by Kumagui Gun11 and situated on the northern houndarq ot Melbourne‘\ C.B.D. (WC (‘haptcr 5 for further details).

4 F-or an ;in;i!;xi\ ot Sydney C.H.D. development see Daly and Stinison ( IWlh) 5 Dal and Stlni\on ;i1\0 point t(1 the reinforcing impact ot certain conjunctural factor\. notably

taxation. The capaclt! to ‘ncgativcl! pear’ interest payments on loan tinance against other income wurc‘a grcatl) cncouragcd spcculatl\e in\e\tments of all kind%. The relatively low Impact of capital gain\ tax in Australia W;IS ;L ful-ther Iactor.

h In Fig 37 the propcrt~ qclc I\ measured h! the surrogate in&x. ‘real cstatc transfer exp~nsc~‘. comprking the trjtal (11 stamp tlutics. other gc~bernment charges. real estate apenth‘ fee\. legal tees. ClC.

7 I h15 latter total ~\cIudc\ the \trata unit hreahdown of Hats and other hu~nesse~, and include\ all titled land rcgartllc\\ ot current land use

CHAPTER 5

Impacts of Japanese Property Investment in Australia

The substantial flows of Japanese investment into the Australian property

sectors during the latter part of the 1980s has had a complex series of economic,

environmental and social/cultural effects.

5.1. ECONOMIC EFFECTS

Clearly the magnitude of the flows contributed substantially to the expansive

boost to output and employment in the main metropolitan economies during this

period: the employment effect was magnified by the generally high labour intensity

of production characterising the construction and tourism sectors. However,

certain negative economic effects also resulted. associated with the volatile and

speculative nature of the amplified construction cycle. An attempt is made below

to briefly analyse the forces behind and consequences of this process for the

central city office and tourism cases treated in the preceding section.

In the case of C.B.D. activity in Sydney. Melbourne and, to a lesser extent,

the smaller mainland capital cities, the rhythm of development was increasingly

tied to the emergence of a new hierarchy of ‘world cities’ (Thrift, 1988: Daly and

Stimson, 1990; Sassen, 1991):

“World cities as international financial and commercial centrch have. therefore, come to intcrnalise a range of rapidly growing functions - the management of international commodity exchange, currency and security markets and the provision of corporate servicca like accounting. insurance. taxation. advertising and legal services ~ necessary to provide a degree of global spatial integration (Daly and Stimson, 1YYO). These world cities are themsclvcs hierarchically structured in order of functional importance (Cohen IYXI: Thrift 19X8). Rapid reconstruction of the built environment of the higher-order cities - e.g. London. New York. Tokyo and Paris ~ has also been cxpericnccd hy lower-order cities like Sydney and Melbourne. especially in the central city office sector. Thus. a truly international property market has emerged. mediated by a new branch of commercial capital. the international real cstatc agents or property consultancics. which are spatially concentrated in those cities supporting global functions and expressing the temporal and dynamic rhythms of global accumulation :’ (Bcrr) and Huxley. IYYZ, p. 13).

One consequence of the ‘globalisation of the C.B.D. is that central city

167


development is partly dissociated from localised forces driving metropolitan

development:

“We are eq,“‘C”C”‘g Mhill mlghr hc calId 2 ~Lxlmplc\ illale~rlc (II rL~~I~111;11 dkarticulation and rc-lntcgration’ in uhlch radical di\luncturc\ xc twang crcatd between \patlall~ contiguclu\ arca\ of the mctrop0lrt~~n capital\ whik close Integration occur\ between the core\ of citie\ halt ;I \+orld apart What L+OC\ ,111 111 downtown Sylncy i\ tar m~xc connected wth what I\ occurring ln the hn;tnu;tl and comm;~nd centre\ ot iVa4 Yor L. I.~~ndon. T’okw~ and Frankfurt. than in nc;irh\ \utwrh\ or ~ub-metropolit~111 node\ like I’arr;lmlrtt;r.’ (Hcrrv. IWI p 4)

This process of segmented urban growth was underpinned in Australia by the

relatively late but radical deregulation of the Australian financial system ((‘a-cw.

IWO; Perkins. 1989). The removal of cxchangc controls, fvating of’ the $A and

entry of foreign banks led to massive fows of’ capital into and out of Australia

during the decade. much of it (as noted in earlier sections) associated with

property development and speculation. Speculation is endemic to modern property

markets:

“In&Cd. the dt.Vdq”“cnt tll the INlIlt cn\IrOI1mC’llt g,\e\ Ire rcrpr, tc1 the cIIcIII;ItI~IIl (,f tictitioua capital on 2 grand \c;rlc rt1c \;tlue ot titles trxled 111 the propert) market hears only ;I tcntativc \pcculdtr\e rclatic)n I(, the real prcx‘c’\w\ 0I wrplu\ \;d~k~ production and &trihution. ;md It i\ this Jktrnction which trpen\ up the pc>\Ghilit! 01 masaivc apcculatiw wak5 (It property rnbe\tment and the attermath: ovcrwpplq 01 urban space. rl\ing ~~:~~mcy rate\ and a sharp tall 111 neu constructi[m 7 hi\ proyxct is particularly likcl! Gncc Iddings entail large Input\ of capital. ;r long cmbtruction period. relatrvcly inHesihlc and immo\ahle cm-WC> and a long ph\srcal liletimc. I~trcalised. wll-reinforcing \pecul;ltivc property \pir-aIs can unwnd rn the \h~lr-t term Ixforc the longer--term rcalitio (I( local O~~I;ICCIII~IU~;~~~O~~ ;~re apparent Indeed. ii host of de\clopcrs and ‘exchange prc)lc\Gonals,‘ - real e\tatc agent\ and con\uIt11nt\. financial, rntcrmcdiaries. short-term q~eculatcw arid the lihc ~ habe 4 \tronc vc\tecl interest in fuelling diort term \pcculatlon” (Ikrry and Huxle\. lW2. p 4-1) ~

Governments. too. are interested in boosting local urban development.

especially those centrally located on strategic site4 which might materially

contribute to the establishment of hroadcr regional. even global. functions. Such

dcvelopmcnts arc popular with State governments since they provide an immediate

boost to local output and employment and often entail reulisation of publicly

owned but underutiliscd land holdings. thcrcbv providing once-off contributions

to the State Budget. Thus. the State go\.ernments in Australia were active

participants in the construction boom of the IWOs. particularly in the case of the

large, multi-use ‘mcga projects’ like the redevelopment of Darling Harhour on

the edge of Sydney’s C.B.D. and Sanctuary C’ovc near the Gold C‘oast (Berry and

Huxlev IYP. Craik. 1991). I.

The*dconomic end-result of place-specific ovcrdcvelopment I\ excess capacit!

and devaluation (Harvey. 19X7). High vacancy rates and capital fixed into

inappropriate. inflexible and immovable assets express serious inefficiencies in

urban property markets and overall rcsourcc allocation. The effective opportunity

cost of locking national and foreign \avings into partly empty buildings is the

potential return from alternative productive investment foregone. Shorter term


effects of volatile, stop-start activity in the property sector include bottlenecks

and delays in response on the supply side, disruption to labour training and

industrial relations and significant problems of fiscal imbalance for State and

local government. During the boom, stamp duty revenue on land sales provided

a healthy revenue boost for State government coffers. However, as property

prices and turnover fell, State revenue followed just as accumulated demands for

public infrastructure and social provision began to increase rapidly. Similarly, local

councils dependent on rate revenue saw their revenue base rapidly eroding during

the early nineties, particularly those councils like Melbourne City which depended

on high commercial land values to fund basic services.

Whereas many traditional Australian industries further declined or stagnated

through the 1980s. one industry in particular stood against the trend - viz.

tourism. Gross tourist expenditure increased by 12.3% and employment by

4.1% per annum, between 1981-82 and 1988-89 (Australian Bureau of Statistics,

1991). International tourist expenditure increased much more swiftly, in line with

the rapid growth in foreign visitors, which reached 2.46 million in 1991 (Daly

and Stimson. 1992, see Fig. 43).i By the early-199Os, tourism had emerged as

Australia’s most important export earner. International tourism is, as noted above,

forecast to continue growing strongly through the 199Os, though at lower rates

than in the preceding decade, with annual numbers to reach almost 5 million

by the year 2000 (Industry Assistance Commission, 1989; Bureau of Tourism

Research, 1991, p. 20).

The Bureau of Tourist Research, by using input-output analysis, has established

that domestic tourism accounted for about 5% of GDP and almost half a million

jobs in the late 1980s; international tourism was responsible for generating just

under 1% of GDP and about 80,000 jobs (Bureau of Tourism Research, 1988;

Centrc for International Economics, 1988: see also, Tisdall et al., 1988; Faulkner

and Fagencc. 1988).

However, as has often been stressed (Industry Assistance Commission,

1989; Adams and Parmenter, 1991) input-output analysis is of limited value

in forecasting the future economic effects of tourist growth; “. such models

exaggerate growth benefits because they assume that there are no supply-side

constraints and no price responses to increases in demand” (Adams and

Parmenter, 1991. p. 6).

Thus, for example. a booming tourist export sector will force price and cost

adjustments through the economy, and movements in balance of payments and

public borrowing will impact on exchange and interest rates which act back on

particular industries. Tourist development will, therefore, to a degree ‘crowd

out’ other economic activity, the degree of crowding out dependent on the level

of unused capacity in the national economy and the net economic impact of

government expenditure and borrowing.

Adams and Parmenter (1991), using the ORANI-F macroeconomic model of the


Australian economy. present several scenarios over the 1988-89 to 200(~01 period.

Where it is assumed that excess capacity exists. especially in labour markets

supplying tourism-related industries. moderate positive effects of tourist growth on

GDP. employment and real wages are generated. However. the model suggests

that the effect of tourism on Australia’s future balance of payments situation

depends critically on how the Federal government manages the economy. “Unless

conditions are such that increased inbound tourism expenditure is prevented from

feeding into net additional demand for imports. increased tourism will not be

reflected in an improvement in the balance of payments” (Adams and Parmcnter.

1991. p. 7). A significant reduction in reliance on foreign debt will also require

an increase in national savings. Further tourist growth will markedly change the

composition of Australia’s exports away from traditional agricultural and minerals

industries, generally improving the terms of trade and reducing the volatility of

overall export earnings and the associated severity of cyclical movements in the

national economy (ihid., p. 7). Restrictive government regulations. especially

in the air transport sphere. and labour market rigidities. limit the direct and

indirect contributions of tourism to the national economy (Industry Assistance

Commission, 1989). Relaxing or reducing those regulations and rigidities would,

in the world painted by the model. increase the net economic benefits of tourist

growth in the next decade (Adams and Parmenter, 1991. p. 8).

However, macro-economic models like ORANI are, by themselves, a weak

indicator of the net economic benefits of growth industries like tourism. both

because of their highly simplistic assumptions and the wide divergence of market

values informing the models and appropriate ‘shadow prices’ reflecting true

opportunity costs (Dwyer c/ al.. 1990). Attempts to use forecast changes in GDP

as an all-purpose indicator of changes in net economic welfare tend to overstate

the size of real benefits. Moreover, general equilibrium approaches are .‘_ of no

use in evaluating different policy options, since the extent to which benefits/costs

of different aspects of the options are over-valued differ” (ibid., p. 59).

Consequently. Dwyer. Findlay and Forsyth develop a cost benefit analysis

((‘BA) framework for evaluating the net economic benefits (which may be

negative) of international tourism rrtld the extent to which they differ between

domestic and foreign ownership of tourism facilities and operations. Benefits and

costs, thev suggest. fall into three broad categories: market distortions. factor use

effects and economy wide effects.

‘Market distortions’ include externalities (positive and negative). revenue raised

(lost) through taxes (subsidies) on foreign tourists, monopoly profits and price or

terms of trade effects. External benefits and costs from foreign (and domestic)

tourism are many and varied. including location-specific effects like congestion of

particular facilities and contributions to the degradation of sensitive natural sites

or artefacts. Price effects include increasing prices for facilities due to expanding

foreign demand. whereby increasing protits or producers‘ surplus more than


outweighs the loss in domestic consumers’ surplus - i.e. the fact that locals must

also pay higher prices than before.

Where increasing international tourism increases the demand for domestic

factors of production and their market prices do not reflect relative opportunity

costs, efficiency gains or losses result. An appropriate CBA must here isolate the

direct and indirect changes in factor uses and value them by choosing appropriate

shadow prices. As the authors themselves maintain:

“[t]he main problems which bedevil all applied welfare analyses, ate those of determining effects on factor demands and measuring shadow prices. The effects of any change in the economy on employment is very difficult to assess. and the estimation of shadow prices on labout. government revenue and foreign exchange. is complex (and an issue about which there has been little done in Australia). To undertake a reliable BCA [Benefit-Cost analysis], a combination of detailed analyses of the markets directly affected, along with an estimation of indirect effects by means of a CGE [computable general equilibrium] model, would be requited. It would be possible to meet these requirements in Australia and produce what, by world standards, ate very satisfactory analyses” (Dwyet et al.. 1990, p. 58).

Although the authors elsewhere (ibid., p. 9) claim that “[w]hen tourism flows

increase, it is likely that net benefits to Australia increase”, as the above quote

suggests virtually no adequate analyses have yet been carried out in Australia.

Moreover, general assertions are unlikely to be helpful, since the positive and

negative effects generated will depend on the scale, nature and importantly,

location of tourism investment. The spatial or locational dimension is critical when

considering the environmental externalities of large projects (see below).

Rather than further develop and apply the CBA framework advanced, Dwyer

and his colleagues focus on the particular effects of foreign investment in tourism

facilities and services (see also Bull, 1988). They posit three cases: simple

ownership of facilities by foreigners, total tourist numbers unchanged; vertically

integrated and foreign owned facilities and services, numbers unchanged; and

vertically integrated packages with increasing tourism (see Table 12). The first

two cases, they argue, result in minimal or ambiguous changes from domestic

ownership. This follows from the fact that most inputs to the tourist sector

continue to be locally sourced in Australia, regardless of the ownership or control

of tourist facilities and operations. “The amount of ‘leakages’ that come about

through greater foreign ownership and vertical integration need not be large in an

integrated economy such as Australia and it is by no means clear that ‘leakages’

wholly are undesirable (since tariffs and taxes are levied on them)” (Dwyer et al.,

1990, p. 33).

In the third case where foreign owned integrated packages increase total

tourist numbers, net benefits to Australia will accrue, assuming that international

tourism is already generating benefits and that the leakage of imported tourist

services, externalities and exchange rate effects caused by the increase in tourism

are minimal. The extra profits earned by foreign operators do nor represent a

leakage, they argue, because they are either fully capitalised into the price paid


TABLE 12. Benefits and costs of foreign owned tourist resources Simple ownership

Benefts/(‘ort> Comment

Protit\ Same. hut capitalised: Different timing Taxrsisuhaidw Can be the same: Depends on tax system Externalities Same Terms of trade Same Import taxation/\uhsid! Same Factor employment effect\ Same General equilibrium cffecti Same Shadow price of government fund5 Depends on tax system Shadow price of foreign exchange Timing change: Minor importance

Vertically integrated package

Profit5

Import taxation/\uhsidq Factor cmplowncnt effects (;eneral equiiihrium effects Shadon price of yovernmcnt funds Shadow price of foreign exchange

Comment

Possibly IOWCI-. capitaliscd Lea\ indirect/factor tax collections. Ikpcnds on tit\ system S;1me Same Tarift collections increase Leas USC of domestic factor\ Smaller effect\ Ambiguous Less earning5 of foreign exchange. changctl

Vertically integrated package with additional tourism

Wenctits/C‘o\t\ Comment

Prohahly greater. capitaliwd Depends on relatlvc Importance ot t~wrkrn change and input wurcing; could increase: Depend\ on fax \y\tem

Extcrnalltie5 Term5 of trade Import taxation/~uh~itlie\ Facto1 ernplo~lncnt effect\

Increased Additional benefit Tariff collections increase Depend< on relative importance of t~wriw change :~ncI lnpur sourcing: Amhlguouh

Ciener;il quillhrium effects Ambiguous Shadow priw of government funds Probable increase Shadoh price 01 foreign exchange Ambiguous; timing changed

Source: D\\)cr, k’indlay and Forsyth ( IYYI ).

to Australians for inputs and facilities or arise as a result of economics of scale

and ccope or superior performance by foreign owners. In the latter C;IX, the

extra profits would not have existed in the absence of foreign involvement, and so

cannot be said to be benefits lost to Australians

In ;I second report Forsyth and Dwyer (1YYl) extend the above analysis b!

concentrating on the impacts of foreign tourist investment in the dynamic growth

regions of Sydney. Gold Coast and Cairns. They find only limited examples of

vertical and horizontal integration. with significant diversification of activities


pursued by foreign tourist operators. Foreign ownership is fairly low, except at

the top end of the accommodation sector and in duty free retailing (see comments

in previous section). Foreign ownership and management of tourist facilities,

especially hotels, are widely separated. Hence, the capacity to exert monopoly

power is generally weak. They explore the extent to which total expenditures

from a typical Japanese package deal leak overseas and conclude that the figure is

about 2S%, when point-of-scale expenditure in Japan is included. However, when

attention is focused on direct expenditures in Australia, import leakages decline

to 4%.

Forsyth and Dwyer also conclude that foreign tourist investors do not have

access to cheaper sources of funds than domestic investors. It does, however,

appear to be the case that foreigners are more likely to assume the risks of

long-term equity holding in the industry. Hence:

“There is some evidence to support the view that foreign investment, in ensuring a apply of equity capital at a lower required rate of return than would be demanded if domestic sources of equity were relied upon, results in a lower priced tourist product. attracting more tourists as a result” (Forsyth and Dwyer, 1991. p. 2).

The authors repeat the argument, noted above, that foreign purchase of

Australian owned facilities and resources will fully capture the present value of

expected future profits on their use, However, they also stress that current prices

will not reflect any future profits or losses associated with the unexpected growth

of tourism. ‘This is an important point. Future tourism demand in a region will

depend on rnany uncertain factors. Foreign ownership removes the opportunity

for Australians to appropriate profits generated by unforeseen or fortuitous future

developments, while, of course, protecting them against the down-side risk. Risks

are high in many tourism operations, associated with weather, industrial relations

and changeable government policies, on the one hand, and with the fact that large

investments must be sunk for long periods in physically fixed assets at particular

locations, on the other hand.

It is not clear yet, the extent to which the late-1980s property boom has resulted

in the construction of over-capacity in the provision of tourist facilities in Eastern

Australia. It may be that Australian investors have done well in selling overpriced

assets to keen foreign operators. Alternatively, to the extent that foreign investors

like Kumagai Gumi have extracted their profits in the development phase,

on-selling completed facilities to domestic long-term investors, any losses and asset

devaluations associated with lower than expected tourist growth in those regions

will be born by Australians.* It is because the risks and uncertainties associated

with place-specific tourist developments are so high, that investors require a high

rate of return. The fact that many Japanese investors, in particular, operate with a

lower required rate of return and a longer-term perspective, reflects the domestic

conditions of their bubble economy in the 198Os, the peculiar institutional dynamic

driving and financing their global growth and the general expectation of many


Japanese developers of being able to extract short term development gain by

selling off completed facilities. During the development phase of tourist facilities

which (unexpectedly) turn out to be ‘white elephants’, financial capital, much of it

Australian, is bid away from alternative investment opportunities. reducing future

domestic growth.

In summary, the economic effects of the volatile flows of foreign. including

Japanese, investment in Australian property are complex and unclear. Far more

research on specific sub-sectors and regions would be required before the following

claim could bc unambiguously advanced: “[rlegardless of whether the level of

domestic investment is ideal, Australia is a net gainer from foreign investment

in tourism” (Forsyth and Dwyer, 1991. p. 2). Referring specifically to the effect

of (all) foreign investment on Australia’s international balance. Jones (1992.

p. 9.13) states:

“The reality ot cornmel-cial ‘realitlc\‘ i\ that the! can he both dc~tructwe of economy and wcial stability and narrowly benelicial. In this context. it seems reawnable to explore. more concretely. posiblc causes of the sustained current account deficit; 111 particular its origins in non-resident related transactions. and to tie foreign rnvestment policy specifically to ii redressing of current account problems”.~

All this suggests that the CBA framework proposed by Dwycr et al. was limited

and incomplete and. therefore, of partial applicability.

5.2. ENVlHONMENTAL EFFECTS

Large one-off tourist developments and cumulative agglomeration of smaller

developments in a region often generate significant effects on the local

environment. many of them negative. some irreversible. Economists recognise this

fact through the notion of ‘externality’ or ‘external effect’. Some resource uses,

including tourism. create costs or benefits for third parties not directly involved in

the market exchange between producer (tourist operator) and consumer (tourist).

Consequently. these costs and benefits are ignored by producers and consumers in

determining market outc0mes.J

Familiar nrgative externalities associated with increasing tourism are:

(a) Congestion effects. restricting mobility and effective access to tourist and

other facilities;

(b) waste generation, resulting in degradation of air, land and water resources:

(c) physical destruction of fragile natural environments or human artefacts by

over-use:

(d) air pollution caused by rising traffic levels;

(e) soil erosion, loss of beaches, aesthetic blight, etc. caused by overbuilding or

densification of strategic sites: and (f) loss of wilderness and opportunities for passive recreation in previously

isolated areas.


Positive externalities of tourism may include:

(4

(b)

(c) Cd)

Improvements in local environmental management brought about by the

need to systematically address the impacts of rising tourism in a region

which would have otherwise been left to slower, piecemeal unregulated

growth. Increasing local population and activity associated with tourism

may create economies of scale and an adequate revenue base for local

authorities to deal more effectively with existing environmental problems;

changing the values and attitudes of local communities in favour of

enhancing the environment, both as an end in itself and as a means of

preserving environmental assets attractive to tourists;

stimulating the development of an active local entrepreneurial climate; and

providing local residents and workers with greater access to improved social

and physical infrastructure and a greater effective choice of activities.

Craik (1991) quotes cross-national research which points to the strength of local

community concerns about the diverse and complex effects of tourist development.

For example:

“Liu. Sheldon and Var (1987). in a cross-cultural comparison of Hawaii, Wales and Istanbul, found that environmental questions were of universal concern. paramount to other considerations. such as economic benefits. social costs and cultural benefits. Although residents did not ‘blame tourism for adverse social and environmental effects‘ (Liu. Sheldon and Var. 1987: 31), they nonetheless expressed concern about levels of crime, prostitution and traffic problems. Economic benefits were recognised hut not at the expense of environmental quality and lifestyle. All sites showed high awareness about tourism impacts and indicated ‘the value of incorporating resident pcrccptions in evaluating the effects of tourism development for planning purposes’ and of the ‘important role of government planning in long-term protection of the environment” (Craik. 1991. p. 129).

Environmental concerns have been strongly to the fore in high growth and

sensitive natural environmental regions in Australia, especially the Gold Coast

and Great Barrier Reef in Queensland. In the latter, attention has focused on the

issue of so-called maximum carrying capacity associated with tourism and related

activities. The emphasis here has been on the correlation between tourist activity

and deleterious impacts on sensitive ecosystems, including the growth/regeneration

prospects of the reef itself (Kelleher and Driml, 1988; Great Barrier Reef Marine

Park Authority, 1988; Craik, 1987; Woodley, 1989).

On the Gold Coast, environmental problems have arisen in relation to

commercial overshadowing of the beach and the threats to dune systems, beach

and river ecology posed by intensive coastal and artificial canal-based residential

systems. Most recently. the flurry of golf course development, described in

Chapter 4, has raised a series of concerns to do with loss of prime agricultural

and passive recreational land, soil erosion, water management and chemical waste

disposal. Rimmer (1992) argues that many of these problems have arisen in Japan

during the past decade as the speculative surge of investment in the construction


and trading of golf club memberships resulted in coverage of 0.4% of the total

Japancsc land mass with courses. and a much higher proportion when onI\

useablc land is considered. These figures will double if the more than 1000 course\

planned and under construction arc completed and added to the 1700 courses

operating in 1990. In the wake of the Nakasone Government’s Resort Lrrrzl (1Y57).

plf course construction has assumed the central feature of a massive redesignation

of land for resort development; by the early 1990s. Ic)‘%, of the total land arca iv;14

marked for existing or future resort development (McCormack. I99 1). Problems

are created not just by the scale of development but also by the type and location

of land convcrtcd:

“As most ot the ideal \ites for golf courts - rolling land uithm I haul crt n,ator cltic\ -- have hcen taken for housing. attention i\ nob focud on toret land al the foot (,f mount;rins to ~curc the necessary IO0 hectares. Graphic illustration\ xc’ provided of torest land being clear-cut and tulldozed to Icvt‘l hill tops and till valley\. During construction thee methods trigger mudslidcs and land \uhvdencc. I3\ lnterferlng with the water retention capacity of the forested area. natural tlrainapc \y\tem\ arc’ affcctcd causing Hood\ during many rainy spells and rcducetl water Ho\\ during drought. Increasingly, agricultural land IS affcctccl. An dtJed hxurd ha\ been the germicide\. herhlcidcs and pe5ticidc\ used to climlnate \.ir-u\c\, dc\tro! weed\ and purge ln\cct\. Annually, about 2.7 ton\ of pesttcidc\ arc ud on .in IS h<)le golf cour\c -- R.5 time\ that used in rice pxklie\ Nor only habe thclr toslc attrihutc\ attected water quality ;md fish II~J t. hut there i\ evidence that chemical\ \uch ;I\ (‘apt;!n. I’aism. Daconil and Gimazin have carcinogenic propertie\ (‘ap~xn, to~ethel with TopsIn methyl. Rentate (Thlram), Diazomin and Trlchlorton. i\ ;~\~~~ated with mutations. TopGn methyl, Captan and Benlate (Thiram) along K I!! r’:iixm and 13enlatL (Ucnomyl) art’ linked with genetic birth defects. Chemicals u\cti a tcrtlli\erh. \oIt and colour conditioner\. and to ‘solidify’ the grour::: Iuve allegedly had ;I hal-mful ettect on solf course staff. adjacent redents and wildlife” (Rimmcr. IW2. pp. 7-S: \ce atvr. Yamada. IWO: McCormack. 1991 1.

The possibility of adverse environmental cffccts arising from golf course

dcvclopment on and near the Gold Coast is heightened by both the rapid rate

of construction and the tight geographical and topographical constraints which

concentrate those dcvclopments into a thin land strip squeezed in between the

coast. to the east, and the mountain ranges to the west of the Pacific Highway

(Rimmer. 1992. p. 14; Parker, 1991). Actual golf course development is likely to

bc slowed significantly in the future, not only due to stronger planning control\

imposed by local governments prodded by an increasingly awarc and concerned

citizenry but also by the scarcity of water.

The existence of complex and pervasive environmental cxtcrnalities generated

by many tourist developments greatly complicates the economic evaluation ot

tourism. Dwyer and Forsyth argue that there ilre generally accepted methods for

valuing environmental externalities’ but concede that in the context of tourism:

“[mleasurements of the value of extcrnalitics is often very difficult. though it is

frequently possible to gain some idea of the importance of the effects” (Dwycr

ct al. 1990, p. 55); or again. “[sjome effects, however, especially environmental

effects, arc very difficult to assess, or value. and these arc sometimes not included


in the core analysis, but are listed as intangibles” (ibid., p. 27). A common

response in environmental management circles, has been to reduce the social

rate of discount for CBAs, in order to allow distant future environmental costs

to count for more in the final analysis. However, as Pearce and his colleagues

retort, this practice cuts both ways by validating more prospective development

projects as positively creating economic value, thereby mandating a greater rate

of development, with its attendant negative environmental effects, than would

have otherwise occurred (Pearce et al., 1989, 1991; Pearce and Turner. 1990).

Pearce argues that. rather than attempt to arbitrarily vary the discount rate,

policy makers should set the maintenance and even slow growth of a constant

stock of ‘natural capital’ as a base constraint on all development projects with

significant environmental externalities. The latter would still be valued but would

nor simply be collapsed into a social net present value calculation regardless of

the possible effects on the prospects for sustainable development in the future.

“The rationales for conserving natural capital are several. It accounts for the

lack of substitutability for many environmental functions. for uncertainty, and for

resilience” (Pearce et al.. 1989. p. 48).h

More radical critiques fix on the nature and pervasiveness of environmental

externalities as deeply subversive of conventional CBA approaches. Perrings

(1987. 1991), for example, utilising a bio-physical approach: 1. seeks to demonstrate that environmental external effects represent fundamental flaws in the axiomatic structure of the dominant models of the economic system. and that the adoption of an appropriate axiomatic structure changes the propertic\ of those models in an important way. More particularly. it alters both the conceptualisation of the environmental management problem and the criteria for dewloping strategies to deal with It“ (Perrinps, 19X7, p. I).

The importance of orthodox and radical critiques for the economic/

environmental evaluation of tourism - whether controlled by foreign or domestic

investors - is that conventional techniques inadequately capture the true social

benefits and costs through time and, therefore, are inappropriate guides to policy

in particular cases. Evaluative and management approaches are required which

more finely identify and quantify the effects of particular projects in the context of

a place-specific complex environment bounded by the inter-temporal requirements

of sustainability (and, as noted below, equity).

5.3. SOCIAL EFFECTS

Craik (1991. p. 79) notes that the previously quoted Industry Assistance

Commission report into travel and tourism devoted only three out of 200 pages

to the social or community effects of development.7 (Even this limited attention

seems significant when compared to the paragraph-length treatment accorded


to such factors by Dwyer et ml.. 1990.) Among the possible social and cultural

impacts of tourism arc:

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

A rise in local community awareness and valuation of heritage asxets in the

natural and constructed environments:

increasing knowledge and tolerance of diverse cultural. lifestyle or

hchavioural patterns - or. conversely. increasing conflict. intolerance 01

xenophobia over 4;imc;

the creation of new patterns of socio-economic differentiation and

inquality, both among existing residents and between them and

ncwcomer4:

the destruction of prc-existing, stable. close-knit social relationships in ;I

locality - as in the loss of ‘small town’ atmosphere in the fact of ;I large

influx of tourists and recent residents servicing their needs. Where the local

culture is traditional or non-Wiestern, the influx of large numbers of tourists

can he culturally catastrophic;

rising local housing and land prices reducing access of lower income

residents:

the perceived powerlessness and loss of control over their everyday lives

experienced by existing residents in the face of the pattern and pact of NM

developments and greater intervention by higher levels of govcrnmcnt;

loss of xxxss to previously accessible public spaces. as with the privitisation

of beach sections or open space within the boundaries of new resorts;

rising petty and organised crime stimulated by the development of a high

cash turnover local economy; and

increasing possibility of political corruption as large tourist developers gain

priveleged ;ICCCSS to local and State decision-makers and public officials. In

the case of large proposed developments. treated as one-off major projects.

the established public planning and tendering systems may by overridden

OI- replaced by special Icgislation or administrative fiat undermining local

confidence in the established political and judicial systems (Berry. 198X).

The various social impacts of tourist development are highly complex.

intcractivc and qualitative in nature: their force is critically dependent on the

specific social pre-history and institutional context of particular localities. As C’raik

( 1991. Chapter 4) has persuasively argued. conventional evaluative approacha

falling under- the rubric of environmental impact statements (EIS) and social

impact asscssmcnt (SIA) fail to capture the range. complexity and import

of such effects. thereby discounting or trivialising them. The commitment to

methodological individualism and a positivist philosophy of science further restricts

the usefulness of EIS and SIA approaches:


scientists. The only concession to social impacts has been to treat them as a hub-set of environmental impacts and to try and assess them in similar ways. Accordingly. social dimensions are encapsulated in terms of establishing thresholds. carrying capacities. and levels of disruption. None of these treatments have really been adequate. Social impacts need to he recognised as ethical issue5 which redefine the space of public interests and public rights. Indeed, the fundamental objection to the social and cultural impacts of tourism is the fact that tourism is based on individual indulgence and private rights” (Craik. 1YYl. p. 83).”

Conventional evaluative techniques, including CBA, have a poor record in

dealing with issues of equity and social justice. Conventional CBA implicitly

weights the benefits and costs equally for all people affected. in the present and

into the future; i.e. $1 of benefit (or cost) is ‘worth’ the same to everyone, hence

$11 return to a wealthy ‘Westerner’ outweighs a $10 loss to an impoverished

‘native’ in the final analysis. This consequence, buried in the arithmetic detail

of CBA is, nevertheless, embedded deep in the theoretical structure of welfare

economies from which CBA as a technique derives (Hunt, 1980). It is possible

to modify the inherently regressive equity implications of conventional CBA

by explicitly adopting a different set of distributional weights when quantifying

benefits and costs - e.g. scaling each dollar of benefits and costs impacting on

the poor up to $2. while scaling a dollar to the rich down to fifty cents. This

is no more or no less arbitrary than an implicit choice of equal weights in the

conventional approach. However, this still locks the analysis into a formal rational

choice approach characterised by the methodological biasses noted above, an

approach which has been particularly and strongly criticised when applied to the

issues of inter-generational equity and justice (Sikora and Barry, 1978; Barry,

1989, pp. 189-203).”

Much of the useful research focusing on the social impacts of tourism carried

out overseas has relied on sociological and anthropological theory and methods.

Such work is underdeveloped in Australia. especially in the case of establishing

causal links between tourism development and socio-spatial change, including,

in particular, the social transformation of the built environment. The recent

explorative work of Mullins (1991, 1992) on the Gold Coast demonstrates the

potential usefulness of such approaches. He attempts to develop a theory of

‘tourist urbanisation’. ‘. . . an urbanisation based on the sale and consumption of

pleasure’ (Mullins, 1992, p. 1).

Mullins argues that tourist urbanisation, such as that unfolding on the Gold

Coast over the past 30 years, focuses social behaviour and land use around

the production and consumption of pleasurable experiences. Such regions are

characterised by, in addition to the fluctuating number and composition of tourists,

growing numbers of semi-permanent retirees and new workers and entrepreneurs

servicing tourists. Particular social forces leading to unique social-structural

cleavages in the local society are likely to arise leading to new types of social

action within definite organisational forms. The emerging structural divisions are.

he suggests, likely to solidify around distinctive class, gender and political relations


which drive actions impacting on the social and built environment. In all this.

the traditional organisational clout of trade unions and political parties will hc

supplemented ty the activity of women’\ organisations and residents’ associations.

Mullins’ analysis. as applied to the Gold Cost, is as yet tentative and

undeveloped. It dots. however, offer scope for ;I much richer understanding of the

social forces driving and social effects impacting on the clcvcloping tourist regions

than currently delivered by the conventionnl analytical and evaluative approaches

discussed above.

CHAPTER 6

Three Scenarios

In a world characterised by persistent structural imbalances in trade and

investment flows, by resurgent protectionism and the strengthening of regional

trading blocs, the future of Japanese direct investment flows to a small, vulnerable

economy like Australia’s must be rated as highly uncertain. The following

scenarios sketch out in barest detail three possible futures to the turn of the

century. Attempts to forecast beyond that point arc likely to be frustrated by the

endemic compounding uncertainties entailed.

6.1. SCENARIO A: ‘UP. UP AND AWAY’

“Reforms already set in train by the Australian Government should increasingly intluence the direction of Japanese direct investment over the next 5 years. The benefits of lower inflation. reductions in tariffs. increased labour market Hexibility and lower waterfront costs. will help to attract investment. Further reform designed to improve the efficiency of Australia’s economy will similarly be the most important means by which the Australian Government can address the underlying impediments to stronger Japanese direct investment in Australia’s manufacturing sector. Indications are that Japanese contidence in the prospects for certain segments of the manufacturing sector have improved” (Department of Foreign Affairs and Trade, lYY2. p. 63).

This official Government view holds that the move to a ‘level playing field’ in

Australia will ensure that domestic manufacturing will join property and producer

services in attracting growing levels of Japanese direct investment through

the 1990s. Ignoring the growing critical denunciation of the level playing field

philosophy by proponents of more aggressive and selective industry policies, the

scenario of expanding Japanese FDI in Australia requires, as a minimum, the

following events or developments to occur:

(1)

(2) (3)

Rapid domestic recovery of the Japanese economy, in the wake of

high interest rates and restrictive fiscal policies imposed by the national

government in the early 1990s to break ‘the bubble economy’ (see

Chapter 2 above). Growth of GDP would spring back to 4-S’% per year.1

Maintenance of a high domestic savings rate.

Continuing technical and spatial restructuring of the Japanese manufacturing

sector to offset rising domestic wages and a high value yen.

181


(4) Accumulating balance of payments surpluses as restructuring and

productivity growth keep ahcad of import liberalisation policies and the

impact of protection in Europe and North America.

(5) The maintenance of stability in the Japanese financial system - and, in

particular. ;I stcudy. managed rationalisation of the asset structures of

the large banks (see note I ): in short. ;I long-term managed. rather than

immediate crisis-induced solution. to the linked problems of massive

over-inclcbtedness of many large Japanese companies. especially those

activclv cngnged in foreign operations. and the accumulation uf a

staggeringlv high ICWI of bad and doubtful debts hclcl t>y the banks.2

To the cxtcnt that these domestically focused dcvelopmcnts in Japan unfold.

Australia can expect to share in ;I moderately growing but still selectively targeted

stream of Japanese FDI, at an overall rate ecl~~al to or greater than in the

IYXOs. The actual pattern of FDI is likclv to be somewhat more balanced for the

following reasons:

(a) Investment in tourism and property is likely to decline in relative terms

during the IYYOs as the reality of cxccss capacity works itself through.

Lower rata of tourist ,gro\vth will further limit new investment. Property

invcstmcnt may partly 4witch out of the cjfficc and hotel sectors into

(suburban) retailing and industrial uses; and

(1~) to the extent that Japanese industry continues to sprrticrli~ restructure. ‘new

industrial spaces’. possibly includin p the ‘multi-function polis’ may emerge

in Australia. as clscwhcre.

The issue of industrial restructuring - and its effects - is highly complex and

contentious. Following the ‘French rcgulationist School’ of Aglietta (1Y79). Lipietz

(IYM. IYX7. IYYO) and Hoycr ( IYM).’ many economic gcographcrs and urban

scholars have argued that qualitatively no+ spatial configurations of production are

cmcrging (Harvey. IYX7. 1Y)xY; Scott. IYXX: C‘nstells. 1YYl). Flexible production

systems. entailing fast-rcsponsc. total quality and ,just-in-time management

techniques. spccialiscd small batch production runs, cntcrprise-based. productivity

driven Inhour relations and niche marketing. arc. it is suggested. replacing ‘Fordist’

mass production organistion in key industries in the most technologically advanced

countries.’ Clnderpinning these changes in the traditional industrial ‘rcgimc

of accumulation’ . ;I new ‘mode of social regulation‘ is cmcrging in which the

nature. extent and impact of state economic intervention has swung away from

Keynsian demand management and welfare provision to a supply-side concern with

rc-establishing the economic and social preconditions of corporate profitability.

These forces played out over space are resulting in the decline of some traditional

industrial regions - the ‘rust belts’ of Northern Europe and North-Eastern U.S.

- in fnvour of rapidlv industrialising zones in Asia. the ‘sunbelt‘ of South-West


U.S., Route 128 near Boston, the M4 Corridor west of London, the ‘Third Italy’,

Silicon Valley near San Francisco and the industrial complexes emerging in centres

like Cambridge (U.K.) and Grenoble (France).

The Japanese Government has actively sought to influence the spatial

distribution of advanced technology and associated service sector industries within

Japan through its “Technopolis” strategy; in rhe late 1980s. 16 centres were

identified as appropriate locations for future accelerated urban development,

housing information-intensive, advanced technology companies and

communications infrastructure (Douglass, 1987; Glasmeier, 1988; Rimmer.

1989; Edgington, 1989). Kenney and Florida (1989) argue that these and related

developments internal to the Japanese corporate structure have resulted in

a distinctively new form of ‘Post-Fordist’ industrial organisation, which they

call ‘Fujitsuisim’ after one of Japan’s leading information technology firms. In

this view, Japanese ‘high-tech’ production is based on integrating information

technologies to radically transform traditional manufacturing, linking incessant

innovation to production, creating continuous productivity growth and introducing

new ways of organising and channelling consumer demand.

The sparial consequences of ‘Fujitsuism’ are likely to be:

(a) Creation of new high technology cities in Japan at the nodes of advanced

global communications networks; and

(b) the export of lower-order production and assembly tasks to lower-wage

countries in East Asia and behind protective barriers in North America and

Europe.

Scenario A suggests that, although Australia is unlikely to benefit from Japanese

investment in category (b) above, we may well successfully attract it through the

joint construction of Australia’s new industrial space - the multi-function polis

(MFP).’

The MFP is an uncertain and contentious proposal. In 1987, the Japanese

Ministry of Trade and Industry (MITI) suggested to the Australian Government

that they jointly support and promote a ‘new city of the future’, to be located

somewhere in Australia.

“According to its creator, MITI, the MFP would combine leisure and resort facilities with high technology companies, research and development laboratories. educational institutions, international conference facilities, condominiums and cultural facilities. It would be a forum for international exchange in the region. as well as a model for new industry development and leisure and resort activities” (Edgington. IWO. p. I),

The officially sponsored search for the location of the MFP in the late 1980s

sparked yet another round of desperate inter-state competition for foreign

investment, familiar to students of the history of state government in Australia

since colonial times. The site chosen, an expanse of degraded waterlogged land

near Adelaide is currently (late 1992) being developed through the contribution of

physical infrastructure funding by the South Australian and Federal Governments.


The future of this site and, in particular. the level of Japanese and other

foreign investment and the actual patterns of land use which will emerge. are

highly uncertain at this point. Critics assert that investment is likely to flom - to the extent that it flows at all - to the creation of conspicuous leisure

consumption and another round of tourist driven speculative property development

(McCormack. IYXY; Kimmer, IYXY: Huxley. IYYO). However, Scenario A presents

the MFP as ;I harbinger of a ncu industrial space which entrenches. in bricks

and mortar. significant technology transfer and ii powerful magnet for ;i sustained

inflow of foreign, including Japanese invcstmcnt in ;I range of consumer, producer

and social infrastructural industries. The most optimistic version of this scenario

- in terms of sustaining high levcl~ of FDI - sees the Adelaide MFP as a seal

for the proliferation of a series of MFPs throughout Australia. each at the centre

of communications facilities linking them to each other and to other ‘high-tech’

regional complexes around the world.

Clearly. Scenario A raises all the issues and uncertainties surrounding the

evaluation of the economic. environmental and social impacts discussed in the

preceding section. To the extent that investment flows more quickly into areas

like propert!’ and tourism. those impacts arc likely to bc all the greater. for good

and ill. However. if foreign investment flows more evenly into other sectors -

like MFP-type locations -- as well. new impacts and complications arise for an!

attempt to cvaluutc the social and other conscqucnccs. Critics of the MFP have.

for example. focused on the negative consequences thought to How from social

polarisation associated with enclave-type development within otherwise traditional

regions. In this view. Australian cities woulcl come to more closely resemhlc

the highly polariscd global cities of Tokyo. New York and Los Angeles. where

extreme social inequality is patterned into definite spatial divisions of labour and

consumption. (Sassen. IYYI: Davies. 1YYO: Watson and Murphy. lYY2).

Japanese FDI to Australia platcauh at c:trl!~-IYYO I~IXZIS. tither bccausc total

Japanese out-investment peaks or because alternative regions are more attractive.

that is:

(a) Total FDI peaks because the process of domestic economic and tinancial

restructuring locks growing domestic savings at home. while global trade

patterns and politics stabilise Japanese balance of payments surpluses; or

(b) other regions cxtcnd their advantages OVCI- Australia in attracting Japanese

investment. both direct and portfolio.

In this future. the U.S. Budget deficit remains high. drawing an increasing

flow of Japanese portfolio funds. while non-tariff forms of protection - quota\


voluntary export restraints, orderly marketing agreements, preferential domestic

purchase, etc. - strengthen their grip in Europe and the Americas. Domestic

Japanese investment is strong and focused on perfecting the ‘new production

systems’ noted in A, above. Japanese FDI sectoral patterns are more or less

maintained, though real estate may dip below 20% of the total as both assembly

and final market-oriented manufacturing develops offshore in the ‘newly

industrialising countries’ (N.1.C.s) and final consumption markets of America and

Europe. The Japanese financial system regains stability, albeit at substantially

devalued asset price levels (Tamaru, 1992). In Europe, interest rates edge up

under German leadership as inflationary pressures reappear in the G7 countries.

In Australia, near zero tariff levels are achieved but the industrial relations

climate worsens and the process of micro-economic reform slows. Inward foreign

investment patterns reproduce 1980s configurations, as a slowly recovering

commercial property market and a moderately growing tourist sector provide

new investment opportunities. Domestic manufacturing, however, continues to

experience decline in traditional areas barely counterbalanced by new

export-oriented industries, the latter funded predominantly from domestic savings

and often existing in a precarious competitive climate. Traditional primary export

industries decline in relative importance in the face of high protection in the

Northern Hemisphere and a steady downward drift in the terms of trade. The

balance of payments constraint tightens as imports rise in line with the slow and

protracted national economic recovery and the weight of repaying the accumulated

foreign debt, pushing interest and exchange rates up and resulting in a moderate

upward trend in foreign debt and intensified inflationary pressures.”

In short, the 1990s reproduce the previous decade as foreign investment is actively drawn into the services sector and official securities. Some, at least,

of the tourist projects in the pipeline are completed, though often at reduced

scale. Japanese purchases of local ‘bargains’ are evident and investment in new

development is strongly focused in ‘blue-chip’ locations. Environmental assessment

and regulation further constrains and focuses development as the institutional

framework, especially at State and local levels, is redesigned with a view to

preventing some of the worst excesses and mistakes of the 1980s. It is a case of

‘business as usual’, though in a more sombre climate of high unemployment and

increasing austerity.

6.3. SCENARIOC: ‘DECLINEANDFALL'

In this future, Japanese FDI to Australia declines sharply. The Japanese

economy is precipitated into a sharp recession by a financial panic centred on

the banking system. Central government attempts to prop up the latter arc too

little and too late. Asset values tumble, forcing new bank lending to be cut back.


Corporate failures accumulate in a chain fashion. At the same time, the North

American and European trade blocs strengthen their collective defenses against

foreign penetration, while the domestic savings rate declines, due to falling

corporate profitability and associated worker bonuses and a higher propensity to

consume domestic and imported goods. Consequently, the balance of payments

turns from surplus into increasingly large deficit. to be funded by repatriated,

bank-enforced foreign asset sales and rising domestic interest rates to attract short

term capital inflow: high interest rates reinforce domestic investment gloom and

work to offset the expansionary (deficit) fiscal policy of the Japanese Government.

The consequcnccs of a sharp decline in Japanese investment - and even

disinvestment - in the Australian economy is concentrated in the financial

services. tourist and property sectors so favoured in the I’sXOs. Projects under

way or planned are scaled down, mothballed or sold off at bargain prices. In the

latter case, some Australian investors may acquire productive assets at minimal

cost. though the increasingly wary and risk averse Australian financial institutions.

still battling to absorb bad and doubtful debts totalling A$30 billion. are loath to

finance such transactions. Instead, cashed-up investors in Hong Kong. Singapore

and Taiwan begin to move selectively into these sectors, in competition with a

resurgence of interest by traditional investor nations. Britain and the U.S. New

invcstmcnt in tourism and related services slows as more cautious evaluations

of future cash flows predominate. Manufacturing industry experiences a sharp

decline and lack of interest by foreign investors, in general. A poor terms of

trade. rcflccting rising global protectionism on a regional basis. lagging domestic

savings and declining inward foreign investment precipitate a balance of payments

crisis and run on the Australian dollar. The Federal Government is forced to

progressively jack-up domestic interest rates. attracting short term foreign capital

but not long-term development finance. Unemployment reaches 15% nationally

and 20% in Southern Queensland. The length and severity of this ‘great crash’

depend largely on the cxtcnt to which ‘the beggar thy neighbour’ actions of

the trade blocs succeed in intensifying and exporting the Japanese recession

worldwide.

6.-l. C‘ 0 N C‘ I. II s I 0 N

The scenarios painted above arc but three possibilities, each with different

implications for the socio-spatial development of Australia. Other variants of these xxnarios - and other scenarios - can easily be constructed. Perhaps the two

main conclusions that can be drawn from this future-gazing exercise are. tirstly,

that the volume, pattern and socio-spatial consequences of Japanese foreign

investment are highly uncertain and. secondly. that the specitic consequences for

Australia are essentially tied to global rather than domestic factors. The latter


point draws particular force to the extent that Australian macro-economic policy

remains dominated by the agenda of economic rationalism. Relatively free labour,

product and financial markets will give free reign to the global forces reshaping

the economic landscape and lock Australian into the increasingly integrated but

differentiated world system as an afterthought.

NOTES: CHAPTER 6 1. In late August 1992, the Japanese Government indicated their clear intention to reverse

restrictive policies by supplementing the process of loosening credit already in place with a massive injection of $118 billion in new public spending. In addition, the government promised to shore up the vulnerable banking system in unspecified ways. assumed by analysts to entail the tapping of the world’s largest source of personal savings - the domestic postal savings system and public sector pension funds (Ormonde. 1992). The Tokyo stock market reacted accordingly, with the Nikkei index jumping 25”/, in 8 days, having slumped under the 15.OnO mark earlier in the month. It was initially believed that the Government would inject 3 trillion yen into a real estate resolution corporation which would purchase the collateral property resumed by the banks, allowing them to realise losses on bad debts and claim associated taxation benefits, while putting a floor under property values, generally (The Bulletin, 13 October 1992). In this scenario, the taxpayer would foot the bill for bailing out the banks. much as the U.S. taxpayer is in the process of doing for their Savings and Loans institutions through the operations of their Resolution Trust Corporation, However, it is not clear that an intervention of the proposed scale would be sufficient to adequately address the problem of more than 200 trillion yen being tied up in property advances by banks and finance companies backed by the banks. It appears likely that the Government may well require the banks themselves to self-finance most of the bailout, by lending to the Resolution Corporation and guaranteeing future losses on resale by the Corporation; this may be the cost imposed on the banks for gaining immediate access to much needed tax relief on non-performing loans (Burrell. 1992).

2. That this outcome is likely is argued by Tamaru (1992). 3. See also: Badham and Mathews (19X9), Dunford (1990). For a detailed theoretical and

historical critique of the regulationist approach see Brenner and Glick (1YYl). Another critical account is provided by Marden (1990).

4. Scott (198X. p. 175) enumerates “three major ensembles” (or collections) of industrial sectors’ most affected: design-intensive, quasi-artisan industries producing for quality consciousness final consumption markets; high-technology industries and suppliers; producer services.

5. Australia is unlikely to fall into category (b), both because of our high wage and corporate tax regime. and the generally declining levels of protection associated with the ‘level playing field’ philosophy of the Federal Labor Government and Coalition Opposition. The MFP has been likened to an offshore technopolis (Mandeville. 19X8). For a range of early Australian views. on the MFP. see the special issue of Australian Planner. Vol. 27, No. 2. 1989.

6. This picture is similar to ‘the slow adjustment” scenarios outlined by the Economic Planning Advisory Council (19Y2. ch. 3).

CHAPTER 7

The Policy Framework Debate

“The [Federal] Government’s foreign investment policy encompasses both the Foreign Acquisition and Takeovers Act 1975 and other requirements set down by way of Ministerial statement. The Treasurer is responsible for the administration of the policy and is assisted in this task by the Foreign Investment Review Board” (Department of the Treasury, 1989, p. 1).

Restrictions on foreign investment (F.I.) were relaxed during the first half of the

198Os, the view of the Federal Government being that such investment was, in

general. welcome unless particular proposals were ruled to be ‘against the national

interest’. In September 1987, the Treasurer tightened the rules governing ‘urban

real estate’. broadly speaking, all such real property in Australia except land in

prime agricultural use. Prior to February 1992, the following main types of F.I.

proposals had to be examined by the Foreign Investment Review Board (FIRB):

(1) All acquisitions of a substantial interest in existing businesses with assets of more than $5 million or $3 million in the case of rural properties;

(2) all investments of more than $10 million in new businesses;

(3) all investments of $5 million or more in non-residential real estate;

(4) all residential real estate proposals (with minor exceptions); and

(5) all investments in the media, regardless of size.

The rate of acceptance is very high; of the 2900 proposals examined by FIRB in

1989-90, only 61 were rejected (FIRB, 1990). In the case of real estate proposals,

developed commercial sites - e.g. hotels - were generally approved as were

virtually all sites for development, provided that development commenced within

12 months. However, (already) developed residential real estate projects were

generally not approved.

In the February 1992 ‘One Nation Statement’ guidelines 1 and 2 above, were

liberalised by raising the threshold value of proposed projects for examination to

$50 million in each case. Smaller projects remain notifiable under the Act but do

not require FIRB approval.

The Federal guidelines also include provision for consultation with the relevant

State Government. The Queensland Government, for example, has indicated that

it will oppose proposals which it believes will result in ‘land banking’ activity by

189


foreign interests. This government is also committed to maintaining at least SO’%,

Australian ownership of projects on offshore islands, with long-term leasehold

favoured over freehold land tenure (Forsyth and Dwyer. 1991. p. 14). All foreign

land ownership in Queensland must be registered. as noted in Chapter 4, above.

In addition to these guidelines of notification and approval at Federal and State

levels. foreign investors must meet the existing legislative regulations governing

development which constrain domestic investors. Environmentally sensitive

projects will normally require environmental impact assessment statements under

Commonwealth and/or State legislation.

The current policy framework is strongly encouraging to foreign investors.

The onus of proof is on opponents of particular projects to demonstrate harm

to the national interest or the severity of particular environmental or social

impacts. In relation to the (generally assumed) positive contribution of foreign

investment to Australia’s balance of payments position, Jones (1992. 9.13) calls

for a more selective and critical approach: “In this context, it seems rcasonablc

to explore, more concretely. possible causes of the sustained current account

deficit; in particular its origins in non-resident related transactions. and to tie

foreign investment policy specifically to a redressing of current account problems”.

In relation to the widely perceived limitations of EIS and SIA requirements in

Australia, Burns and Associates (1989, p. 39) comment “(h)igh on the list of

complaints would be the element of discretion in most legislation as to whether an

EIS will be required for a particular project or not”. Most specific planning and environmental controls over major property

developments are implemented at local government level in Australia. This

inevitably lcads to a highly uneven pattern of development responses and

outcomes over space. Although the danger of preferential treatment and

corruption is ever-present. this patchwork system does allow for a degree of local

democratic control. However. in most casts. the State Government has reserve

or discretionary powers to ‘call-in’ particular planning issues. impose overriding

environmental controls or, failing all else, amend the Local Government.

Planning and other relevant Acts. More tellingly, the States may simply change

the rules (Berry. 1988; Berry and Huxley. 1992). “Across Australia there are. in

fact, a number of legislative devices specifically designed to enable development

projects to by-pass the normal environmental protection mechanisms” (Burns and

Associates, 19X9. p. -ll).

Both Burns and Associates (1989) and Craik (1991. ch. 8) have cited

Queensland in relation to this practice. The earliest and most notorious example

was the Iwasaki Tourist Resort at Yeppoon near Rockhampton. on the central

Queensland coast. The Japanese developer was able to acquire freehold tenure

of 9000 hectares of leasehold land by way of a special franchise agreement under

the Lunds Acr. 196.5. A subsequent amendment to that Act allows other leasehold

land to be freeholded if the Queensland Tourist and Travel Corporation and


relevant Minister believe that conversion would facilitate the construction and

operation of international tourist facilities. However, in the case of Iwasaki,

little development occurred on the ground over 10 years. Critics argued that the

developer’s promises were primarily aimed at land banking freehold property

for future unspecified development and speculation. In 1989 the National Party

successor to the Bjelke-Petersen Government was forced to repeal the agreement.

returning the bulk of the land not developed to the planning control of the local

government. The controversial powers granted Iwasaki to virtually privatise

sections of beachfront were also repealed.

In 1985, as noted above, the Queensland Government passed the Sanctuary

Cove Resort Acr, which, facilitated by complementary local Council re-zoning,

provides a highly specific legislative instrument tailored to the needs of that

particular development:

“Accordingly. the Act overrides some normal local authority and state legislative provisions. such as the Harbours Act and Navigation Act in relation to the floating homes. Other aspects of the development were still subject to local authority approval. but the local authority in this case felt under pressure to grant approval, given the influence of various lobby groups. Local authorities are also usually under-equipped to conduct adequate studies of proposals, unable to guess the right question. and under tinancial pressure to acquiesce to a development that will purportedly pump capttal into the local economy” (Craik. 1991. p. 208).

The Sanctuary Cove Act was subsequently amended to allow the developer

to increase residential densities on part of the site. Strong criticism was levied

at the nature of the development, lack of adequate environmental assessment

and assurance and the ‘cosy’ personal links between the original Australian

developer and key political figures in the State and local governments, seen to

be a prime example of ‘political cronyism’ characterising the later terms of the

Bjelke-Petersen government. On the environmental front, concerns have been

expressed about the threat to pre-existing residential canal developments up-river

posed by enhanced tidal wash caused by dredging to allow river access to ‘the

Cove’. This effect and other possible changes to local river ecosystems were

ignored.

Responding to criticisms of the preferential, one-off nature of the Sanctuary

Cove Act, the Queensland Government passed its Integrated Resort Development

Act, 1987. This Act sought to regularise and routinise land subdivision for ‘a new

generation of complete resort destinations’ (Craik, 1991, pp. 209-216). However,

it does largely exclude local councils from exerting control over such designated

developments through normal statutory planning instruments. The Department of

Local Government is charged with administering this Act and final discretion on

particular proposals resides with the Minister. Once designated under the Act.

the site passes beyond the control of the local Council. Substantive, as opposed

to procedural, criticisms of the Act point to the possibility of its manipulation

to allow for ‘fast-track’ property developments more concerned with the sale of


luxury residential units than genuine tourist dcvclopment: ‘*(t)hc process has been

tcrmcd ‘worming’ by which a developer gains land incrementally and develops it in

stages for which retrospective re-zoning is then sought” (Craik. IYYI. p. 115).

Referring to the phenomenon of ‘preferential treatment’ in general. Burns and

Associates ( IYXY. p. 41 ) conclude:

.‘S~+ch ‘ia+tracking‘ clearly ha wmc poGtlve ayxxts. Ggntificantl) \hortcnlng end rcducinp the co\t of the development procc~~ for maior prqect~. The malor thruu of wch Icgtdat~c~n. houcbcr, ciinnot hc mistaken. Ry circumventtng c*l\ting planning regulation\ and hb r-educing or cbcn eliminating the pos\ibilitie\ fat- puhllc \cl-utin) ;tnd clchate. .l’axt-tracclng’ has to he vxn ~1s reducing oh\tacles to dc~elopmenl and hencc. c)ftcrlng e\cn le\\ environmental protection than i\ normally otlercd ~ithlrl the F.IS

tramcwork”

In summary. then. the current policy framework at all Icvel\ of government

in Australia is weakly devclopcd and unable to provide an exhaustive and

coherent basis for the evaluation, monitoring and social control of major propcrt!

development in areas like tourism, including those financed and/or managed b>

foreign interests. Hence, neither the policy context nor the conventional cvaluati\c

tools discussed in Chapter 5. above, are currently adequate to inform and impost

an appropriate national urban policy directing foreign controlled major propert\.

developments in Australia. In the vacuum created, outcomes arc mediated b!,

piecemeal market processes and political interventions. Further research could

usefully focus on how particular development sectors relate +o ;I broader.

ova-arching national policy of urban and regional development in Australia and

what role (with what constraints) foreign direct investment should play. Clearly,

this also entails a more concerted attempt to sketch out what an appropriate

national urban policy would look like which further entails ;I more devclopcd

framework for evaluating the complex economic. cnvironmcntul and social impacts

of particular development trajectories. Research and policy debate in both these

cases is at a very early and unsatisfactory level. though the signs arc that the IYYOs

- unlike the 1080s - may well take the first challenge seriously (Berry. lYY?).

Appendix 7

The following people were interviewed or gave assistance during the progress of

this research. The author wishes to acknowledge their help and to stress that they

are in no way responsible for the views or conclusions expressed in this study.

(1) Prof. M. Daly, Department of Geography, University of Sydney.

(2) Mr G. Keys, Manager, Corporate Financial Services, Price Waterhouse

(Melbourne).

(3) Mr C. Murphy, Department of Geography, University of Sydney.

(4) Mr M. Panagiotopoulos, Director Australia-Japan Economic Institute

(Sydney). (5) Prof. R. Stimson. School of Engineering and the Built Environment,

Queensland University of Technology.

.w 4,:2-r 193

Appendix 2

The data on foreign investment quoted in Chapters 4 and 5 have a number of

limitations. In general, investment by foreigners exceeding 10% of the ordinary

shares of an Australian company is classified as ‘direct’ by both Japanese and

Australian official statistics. In the case of Japanese equity investment in Australia

more than 80% passes this benchmark and appears as direct investment (Access

Economies, p. 51). Likewise, direct investment will include some borrowing and

accounts payable (or prepaid). Hence, in a substantial (and variable) number of

cases, direct investment inflows do not entail control of the domestic operation

concerned.

The Japanese Ministry of Finance (MOF), FDI data suffers from two major

faults:

(1) It is an historical record of notified investments and so does not revalue

earlier flows at current market prices; and

(2) it excludes retained earnings of Australian companies and businesses

invested in.

In consequence, MOF data on cumulative FDI in Australia significantly

understate the true picture and do so to different degrees between sectors of the

Australian economy, depending on the particular time profile of Japanese inflow

to each sector. The degree of understatement is lowest in sectors like real estate

where most of the inflow was concentrated in recent years. Like the FIRB data

(see below), MOF data records intended not actual investment.

The Australian Bureau of Statistics F.I. data give a more accurate picture of

actual capital flows across the exchanges and do value those flows and retained

earnings at market values. However, the ABS does not disaggregate the categories

of foreign investment sufficiently to clearly identify real estate flows nor are all

real estate transactions included. Hence, real estate investment. including portfolio

funds on-lent by domestic financial institutions, will be underestimated.

The Foreign Investment Review Board data refer to total expected expenditure

on asset acquisition and new businesses. They:

(a) relate to proposals which may or may not be fully implemented in future

years;

195


(b) do not indicate the actual source‘ country of funds tinall! committed:

(c) do not ncccssarily imply change to foreign ownership (i.c. acscts mav bc

acquired from other foreigners): and

(d) rclatc only to new proposed FDI ahovc :I given thrahold and capital raised

in Australia to fund proposals.

In particular. the FIRB statistics do tlo/ accurately mca’rurc foreign capital inHow.

since:

“The cxtcnt to whtch qmned I~I\C~~II~C’III pn~po~~~l\ n111 dlrcctl! ICWII 111 I~~rclgn capital inHow\ dcpcnd~ not only upon whether the propowl\ arc implcmcntccl I-rut ;II\o upon the proportion financed from lorcign \ourcc’\. In man! caw\. 1h1\ plolx~r~ion bill lw quite low” (Foreign Investment Rcvicw Hoard Annual kqN11.1. IWII. 13 ict)

In summary, all existing offcial sources of foreign invcstmcnt data have

biases. exclusions and other limitations. Hence. the data quoted in this (and

other related) study(ies) must be treated with some caution. ‘l‘hc picture would

be clearer if better and more complete data wcrc readily av;~iIable. (For further

information. see: Australian Bureau of Statistics. Catalogue No. 5305; Access

Economics. 1991, FIRES Annual Reports.)

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London. AGNEW, A. (1992) Japanese investment into Australia, In: Australia-Japan Economic Institute.

Austrulia-Jupan Busineu Outlook Cortferencr Proceedings, Sydney, March. AUSTRALIAN BUREAU OF STATISTICS (1990) Foreign Investment Australia. 1Y88-89, Cat.

No. 5305.0, Canberra. AUSTRALIAN BUREAU OF STATISTICS (1991) Directory of Tour&m Statistics. A.G.P.S.,

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