Juwai.com has released the Australia 2019 Outlook for Chinese Residential Real Estate Buying, which shows that 2019 will continue the strong outlook for Chinese investment as buyers are attracted by dropping prices in key markets.
According to the report, Chinese buyers will be bolstered by strong Chinese wealth growth and the desire to get a bargain while the market is soft. A lack of investment opportunities both in China and in other regions such as the US due to the trade war are also motives behind further activity in Australia.
“Unlike Australians, Chinese lack appealing alternative investments at home. Bank deposits earn unnaturally low rates of return, Chinese stock exchanges are still immature and were the world’s worst performing in 2018, Chinese real estate is tightly regulated to make investing difficult, and peer-to-peer lending and private equity funds have collapsed due to fraud, poor management and government crackdowns,” said Juwai.com CEO and Director Carrie Law.
“Because few other appealing investment opportunities exist, Chinese have put 53 per cent of their wealth into real estate. In a 2018 survey, Chinese overseas investors named residential property their favourite asset class.”
Barriers to investment
There are, however, a few barriers in the way of Chinese acquisition of Australian property. These barriers mean the rates are far lower than the current demand, according to the report.
2015 and 2016 were boom years for investment, but that dwindled across 2017 and 2018. The numbers in 2019 are expected to stay the same unless Australia sees change in any of the policies which block foreign investment.
“Our metaphor is aquatic. The huge reservoir of Chinese demand is like water held back by a dam. That dam consists of capital controls, onerous Australian foreign buyer taxes and the difficulties obtaining financing in Australia,” said Ms Law.
“In 2018, Chinese residential buying inquiries were down 20 per cent compared to 2017. But the news wasn’t all bad. In the fourth quarter, Chinese buyers made 58.1 per cent more enquiries on Australian property than in the same period in 2017,” according to Ms Law.
May was the lowest month for enquiries, with October seeing the peak. These levels are expected to continue in 2019 due to the restrictions mentioned before, but we’ll still see Chinese buyers representing the highest percentage of foreign investment at 22 per cent.
The report shows that Chinese buyers spent approximately three to eight per cent more on foreign property in 2018 compared to 2017 levels, which sat at US$129.3 billion.
The most popular Australian cities for Chinese investment in 2018 were Melbourne, Sydney, Brisbane, Adelaide and Canberra. Regionally, the most popular locations were the Gold Coast, Newcastle, the Sunshine Coast, Cairns, Wollongong and Geelong.
“Victoria will continue to receive the greatest share of Chinese residential investment — both by offshore and local Chinese buyers. The state, according to Foreign Investment Review Board data, receives about $4 of foreign real estate investment for every $3 that go to New South Wales and for every $2 that go to Queensland,” said Ms Law.
“Melbourne retains clear advantages over Sydney in terms of lifestyle, prices and also a foreign buyer stamp duty that at 7 per cent is one point lower than the New South Wales equivalent.”
There is no chance Sydney will be knocked off the second place position in 2019, says Ms Law. With its iconic landmarks and popularity as an ‘iconic city’, Chinese buyers will still want a piece of the action.
“Very few attractions in Melbourne have earned the same level of awareness among Chinese consumers as have the Sydney stand-outs. While official statistics show that 62 per cent of Chinese tourists visit Sydney, only 50 per cent go to Melbourne. One-quarter visit the Gold Coast.”
The interest in Brisbane is driven by families with children who are studying in the city. More than 33,000 mainland and Hong Kong students were studying in Queensland in 2018, a significant increase from 21,000 in 2015. Chinese buyers interested in this area are hoping to make a profit on student accommodation and purchase property which can then be rented out.
“This year, in all four cities, we expect Chinese buyers to continue to focus their demand on new apartments and house and land packages. Outer suburbs where new estates are going up are stealing buyers away from more traditional inner-city locations. Where developers or third parties can provide financing, demand is likely to follow,” said Ms Law.
Why Chinese buyers are keen on Australia
Chinese buyers are getting richer, and the yuan is currently sitting very favourably against the Australian dollar, which makes Australian property a tempting investment opportunity.
“China will probably pass the USA in GDP size this decade to become the world’s largest economy. It is already the world’s largest manufacturer and biggest exporter. There are now 3.5 million US dollar millionaires in mainland China, and wealth per adult has more than quadrupled over the past six years,” said Ms Law.
“Much has been made of the weakness in the Chinese yuan and how it may restrain overseas investment. In the case of Australia, we disagree. The yuan’s weakness is not holding back investment in Australian property.”
The yuan currently sits six per cent higher against the Australian dollar than it did at the same time last year. Despite this, it sits low against the US dollar and other major currencies. This, combined with the budding trade war in the US, makes Australia an easy choice for investment.
“Australia has always competed to some degree with the US for Chinese students, tourists and property investment,” said Ms Law.
“With the trade war making some Chinese investors increasingly nervous about making new acquisitions of US real estate, some of those investors may turn to Australia as a natural alternative. Chinese students who turn away from US schools and universities may also choose Australia instead, which would also have spill-over effects on local real estate investment.
“The trade war could mean more Chinese investment for Australia.”