The man behind a letterbox campaign warning Sydney's housing market is under threat from "Chinese invasion" is an idiot, New South Wales' Multiculturalism Minister says.

Nick Folkes said he had distributed thousands of the leaflets on Sydney's north shore and in the inner west, which blame Chinese investment for the high cost of housing in Sydney.

"Aussie battlers are being pushed to the fringes of our cities while foreign intruders are reaping the benefits of our hard-working previous generations," the leaflets said.

"The new dispossessed or forgotten people will one day be remembered as the 'stolen generation' priced out of their market by invading Chinese foreigners."

The campaign came as new figures from property consultancy Knight Frank showed Chinese investment in the Sydney and Melbourne property markets doubled last year.

They show Chinese investors spent more on Australian real estate than on properties in London and New York for the first time.

Multiculturalism Minister John Ajaka said the leaflets were vile and disgraceful.

"New South Wales is one of the most multicultural societies in the world and we are very proud of that," he said.

"These attacks by this idiot — and I can't think of any other word to call him — seek to destroy all of the work that so many people have done together for the benefit of the whole state."

Lane Cove Mayor David Brooks-Hornis, whose shire includes households targeted by the letterbox campaign, said the issue was worthy of discussion but the leaflets were divisive.

"I think it's something that probably should be talked about but it's a matter for the Australian Government, not to try and divide a community," he said.

"I think the message, if he's got a message, can be delivered in a lot more congenial manner."

Mr Folkes said his leaflets did not target Chinese-Australians buying homes, but China-based investors.

"This is all about the economic genocide that is occurring right across Australia where locals are being priced out of the market," he said.

"Foreigners, whether they be Chinese or anybody, should not have the right to own residential property in Australia."

Mr Folkes is trying to register a political party, Party for Freedom.

According to the Foreign Investment Review Board, China overtook the United States as the biggest source of proposed foreign investment in Australia in 2013-14.

Proposed Chinese investment totalled $17.5 billion that financial year, which as "mainly driven by a large increase in residential real estate approvals".

The Federal Government is planning to change the rules for foreign buyers to force those buying residential property to pay fees of at least $5,000.

The Government will also set up a register to track foreign ownership of residential and agricultural property.

The reforms are due to take effect in December.