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HAS CHINA’S LOVE AFFAIR WITH SYDNEY PROPERTY HIT A ROUGH PATCH?
Over the past few years, Chinese investors have developed an appetite for Australian real estate. In 2016, Chinese investment in Australian property hit an impressive $31.9 billion, the highest level since the global financial crisis.
Is Chinese investor interest in Australian property waning?
As an established Chinese commercial real estate agent, I work with a lot of overseas and local Asian buyers and investors. Over the last three months, I’ve seen Chinese investors shifting their focus from residential to commercial, or withdrawing from the Australian property market entirely.
Why the new trend?
1. Limited flow of currency out of China
Until recently, China was one of the world’s fastest-growing major economies, with growth rates averaging around 10 per cent. However, much of this growth is now fuelled by credit.
In a bid to limit capital leaving the country and stabilise GDP, the Chinese government has set up strict policies for banks to limit and often block foreign transactions. As a result of these measures, Reserve Bank Board Member and Treasury Secretary, John Fraser, advised that foreign investment applications have fallen sharply over the past year.
2. Increased taxes for foreign buyers
To help fund new stamp duty concessions for first home buyers, the NSW State Government recently increased the foreign investors stamp duty from 4 to 8 per cent and the annual land tax surcharge from 0.75 to 2 per cent.
NSW Premier Gladys Berejiklian stated that the increased charges were not put in place to disincentivize overseas investment, however, the extra taxes are certain to deter some buyers.
3. Banks halting foreign lending
Buying off-the-plan is popular amongst foreign investors. In an attempt to mitigate risk, the major Australian banks have stopped lending to foreign property buyers. The result? A 43 per cent drop in demand from Chinese investors in off-the-plan properties.
4. Other factors
Added into this mix of legislation changes:
- Seasonality – investment tends to slow down during winter
- New fines – of up to $5000 for properties that remain vacant for more than six months
- Inflated prices – which is negatively affecting rental yields
I also deal with many property owners who are yet to adjust to these changes. So, when it comes to selling their property, they have very high price expectations which are unlikely to be met by the market.
All these factors combined are contributing to a lack of confidence, making Australian property purchases less attractive, especially for long-term investments.
What are the upsides to this change?
Some suburbs remain strong
While the residential property market is more vulnerable to the decline in investor sentiment (particularly off-the-plan developments), suburbs with large Chinese communities such as the Sydney CBD, Chatswood, Hurstville and Burwood, continue to see growth.
Local Chinese communities are very family, business and property oriented. So, they will continue to buy in these areas for themselves, overseas relatives or for their children.
Australia remains a safe haven for commercial investment
Though the commercial property market is not immune, I’m seeing a growing trend towards Chinese buyers shifting their attention to offices, retail and industrial property investments instead of residential.
According to a recent KPMG report, commercial real estate is still the preferred place for Chinese to invest, making up 36 per cent of direct investment in Australia.
Unlike the residential market, commercial properties can offer much better yields, particularly in places such as the Sydney CBD and fringe suburbs, where rents have increased by up to 20 per cent due to limited availability of stock.
Some Chinese businesses or investors have also been able to circumvent lending restrictions. So, there’s still a high demand for strata suites and retail shops.
What does the future hold?
Whether Chinese buyers and investors continue to tread with caution or withdraw from investing in Australian property altogether remains to be seen. The current slowdown is not a result of a shift in mentality, but a consequence of strict government policies and a tightening of lending.
Australia will continue to be a popular place for Chinese to buy property, especially for those looking to live here. Our stable economic and political environment, clean air, quality food and sound education system, make it a desirable destination to relocate.
For commercial property, high yields will continue to entice foreign investors, despite a shortage of stock driving prices upward.
I believe that a property price adjustment is inevitable, but am confident that Australian property has the strength the climb higher in the long term. Considering the current market conditions and tough new lending policies now might be a great opportunity for investors to pick up a bargain.