Craig-y-Mor, an elegant 106-year-old home owned over the years by several prominent Sydney businessmen, was bought in 2008 by the son and daughter-in-law of a former senior member of the Chinese politburo for $32.4 million. In recent weeks, wrecking crews have embarked on a job that symbolises the international economic clout of the Chinese elite: razing the Australian mansion with stunning views of one of the world's most picturesque harbours.

The new owners, Zeng Wei and Jiang Mei, sought permission to demolish the two-storey brick house and replace it, at a cost of $4.5 million, with a five-level modern concrete structure with huge windows. The plan horrified some neighbours and government officials, who thought the new building would be too big and unattractive. After the municipality refused to allow the demolition, Zeng's lawyers appealed to a state judge, who overruled that decision.

Australia relies on China to buy much of its two main exports, coal and iron ore. But many say there is a downside to Chinese investment: surging property prices.

Even though Australia is sparsely populated, house prices in its biggest cities are comparable to those in Washington, San Francisco and Paris.

Sydney's average house price rose 15 per cent to the equivalent of $613,000 in the year ended March 31, according to RP Data-Rismark, a research firm. Many younger university educated Australians find it impossible to afford homes close to their workplaces without parental assistance.

Credit Suisse estimates that 18 per cent of all new houses and apartments in Sydney are bought by Chinese citizens. In Melbourne, the figure is 14 per cent.

These figures are likely to rise. To stimulate the economy, the Australian government recently expanded a program to grant permanent residency to foreigners prepared to invest at least $5 million in Australian businesses. Ninety per cent of the applicants so far are Chinese.

Concerns that Chinese buyers could be driving a property bubble are so widespread that the Federal Parliament recently began an investigation into the possibility.

Research given to the inquiry by two academics found that people with Chinese surnames paid slightly less than other buyers for similar houses and apartments in Sydney, suggesting they are tough negotiators and are not pushing up prices.

Many Australians are not convinced, according to submissions to the inquiry from the public.

"Widespread injustice will continue with Australians being outbid by foreigners on an uneven playing field," a woman named Pat Sutton wrote to the investigators.

The concerns reflect a belief among many people that Chinese citizens are using cities such as Sydney – an 11½ flight from Beijing – to protect their wealth from theft or seizure by the Chinese government.

Zeng and his wife may have had another reason to choose their new home apart from Australia's strong defence of property rights and the 180-degree views of Sydney Harbour. Feng shui expert Gary Khor recently told Fairfax Media that Point Piper, the wealthy suburb where Craig-y-Mor is located, contains positive energy because it overlooks calm, moving water and has a hill to its rear.

Little is known about Zeng's personal or professional life. His father is Zeng Qinghong, the vice-president of China from 2003 to 2008 and a player in the leadership maneuvering over the past decade that led to the rise of President Xi Jinping.

Foreign Policy magazine reported in 2012 that Zeng Wei was involved in the clandestine privatisation of the state-owned Luneng power generating company, which had over $9 billion in net assets.

Zeng, who is reportedly in his mid-40s and has young children, did not respond to a letter seeking comment on the Sydney home. John Landerer, managing director of the law firm that represented him in his dispute with the council, declined to comment. The architect designing the new house, Stephen Gergely, referred questions to a representative of the Zeng family, Gavan Slaughter, who also did not comment.

Workers began demolishing the home last month, an event that was front-page news.

"They are knocking down something that was modest and thoughtful and replacing it with something that doesn't even have a thought in its head," said architecture critic Elizabeth Farrelly in an interview.

Bill Malouf, a veteran real estate agent whose firm brokered the sale of the house, said in an interview that Craig-y-Mor was not in need of renovation. Chinese buyers prefer modern, symmetrical houses lacking the ornate detail common to many of Sydney's grand older homes, he said. Views of the Opera House and Harbour Bridge are important, he said.

"He was always going to do a major renovation," Malouf said of the buyer. "There was nothing wrong with the house."

The construction site at Craig-y-Mor has now turned into a regular stop on the Chinese tourist circuit, along with Bondi Beach and the Harbour Bridge.

Washington Post