Chinese interest in Australian property cools as tougher regulations bite
Offshore Chinese investors have helped drive the Australian property market to new heights.
But with the tightening of government regulations, that interest is shifting to other attractive markets.
“Now we can see a lot of overseas buyers shift their focus away from Australia,” Home 789 chief executive Walton Chu said.
“They are looking at our neighbour New Zealand, Europe and some other Asian countries to invest,” he said.
It is a similar story at the Sydney-based Linfield Property Agents according to Shan Lin.
“We found now in the last 12 months our offshore market [has] cooled down big time,” Mr Lin told ABC’s The Business program.
Chinese investors are the biggest group of foreign buyers in the Australian real estate market according to the Foreign Investment Review Board.
As a group, they spent $32 billion in 2015-2016 alone, mostly in Sydney and Melbourne, four-times the amount US residents spent.
But they only account for a fraction of the $7.2 trillion housing market, largely because non-residents are restricted to purchasing newly constructed property.
A ‘maelstrom’ has hit Chinese investment
The slowdown has already had an impact on Linfield’s business, which has shifted its focus from offshore to local buyers in the past two years.
“Up to this year 2017 our overseas clients are just 10 per cent only, not so many at all,” said Mr Lin.
Last year, the Reserve Bank warned a reduction in Chinese off-the-plan investment is “inevitable” and if Chinese investors pulled back, it could weigh on domestic property prices.
“It’s a maelstrom of issues converged together at the same time,” according to China-expert, and founder of investment firm Basis Point, David Chin.
“You’ve got capital constraints tightening up over the last six months and increasingly on the horizon it looks [like it will] continue to be tight.”
The Chinese Government has further restricted how individuals transfer money abroad and, just last week, the State Council put the brakes on companies spending on overseas property development.
It comes after the big Australian banks curtailed lending to overseas buyers last year.
“It’s getting harder and harder to get money out from China,” Mr Chu observed.
Tax hikes target foreigners, many ‘walk away’ from off-the-plan
At the same time Chinese investors now have to pay more tax for Australian properties, as state governments grapple with housing affordability.
The Victorian Government recently cut stamp duty concessions for offshore investment.
That essentially introduced stamp duty charges of between 1.4-to-5.5 per cent — depending on the value of the property— as well as a vacant property tax of 1 per cent.
The New South Wales Government doubled the surcharge on stamp duty for foreign investors from 4 per cent to 8 per cent and increased land tax from 0.75 per cent to 2 per cent.
“If you see the situation in Vancouver, Toronto, Hong Kong and Singapore, all these countries have at one point in time increased the foreign stamp duty to levels similar to Australia or slightly higher,” Mr Chin said.
“In all cases there was a dip in demand and pricing.”
Real estate agents contacted by the ABC are already seeing an increase in nomination sales — where buyers try to sell their off-the-plan properties when it comes times to settle.
“I can’t deny it,” Mr Chu, who operates out of the inner-city suburb of Redfern, said.
“For our business we’re ok, but I’ve heard from my agent friends quite a lot of overseas buyers, they struggling to get finance here.
“So either they would chose just to pay off straight away or rather just say lose [the] 10 per cent deposit and walk away.”
New regulations for developers
Melbourne-based agent Andrew Wood said the tightening of the finance regulations has made things more difficult.
“There are more buyers exploring the nomination sale than there would have been in the past,” Mr Wood said.
Rules for developers have changed too.
They can now only sell up to half the dwellings in new developments to foreign investors.
“For a developer to go to the bank and get development finance they need to be able to show the volume of off-the-plan sales and the off-the-plan sales market is really highly focused on a lot of foreign buyers,” Mr Wood noted.
“So to get the development out of the ground they need off-the-plan sales and foreign sales.”
While the Australian brand in China remains strong, the changes to property laws mean Chinese buyers do not feel quite as welcome in Australia anymore.