MELBOURNE–Having become the biggest group of foreign buyers a year earlier, Chinese doubled their investment in Australia’s real estate market in 2014-2015.

foreign residents would be charged a 10% withholding tax when purchasing properties worth over A$2 million, ostensibly to crack down on sellers evading capital gains tax
Foreign residents would be charged a 10% withholding tax when purchasing properties worth over A$2 million, ostensibly to crack down on sellers evading capital gains tax

Drawn by the promise of a safe English-speaking country increasingly linked to their homeland by immigration, foreign study and trade, the beneficiaries of China’s rapid economic rise poured A$24.3 billion (US $17.4 billion) into property. But Chinese buyers may now be wondering if their money is still welcome, thanks to a raft of new restrictions on foreign property purchases.

In the first half of 2016, Canberra, individual state governments and the banking sector all erected new barriers to foreign buying, the largest portion of which is Chinese.

Earlier this month, the Australian Taxation Office announced that foreign residents would be charged a 10% withholding tax when purchasing properties worth over A$2 million, ostensibly to crack down on sellers evading capital gains tax.

Described as a “fresh blow to Asian buyers” by a columnist in The Australian newspaper, the move came after three of Australia’s four main banks tightened their rules for lending to foreign purchasers and the fourth, Westpac Bank, banned such loans outright. Just weeks earlier, new rules came into effect to make all inward investment related to “critical infrastructure” subject to oversight by the Foreign Investment Review Board.

Local jurisdictions have also put the squeeze on foreign buying: Sydney now requires proof of citizenship and residency, while the state of Victoria, home to second city Melbourne, hiked its tax on foreign purchasers from 3% to 7%.

“What it does is redirect capital,” Tony Crabb, the national head of research and consultancy at Savills Australia, told the Asia Times. “So if capital were coming to Australia, it’s charged more for perhaps the same opportunity as you’ll get elsewhere, so the money is going to go elsewhere.”

It is difficult to gauge the impact of the changes on Chinese and other foreign buying. Most measures have yet to take effect or only did recently, and other factors such as currency fluctuations greatly affect the market. Nevertheless, there are indications that at least some Chinese have been rethinking Australia as their preferred option.

A report by the Asia Society and Rosen Consulting Group found that a massive uptick in Chinese investment in U.S. property was partly the result of the more hostile environment in Australia.

“What we’ve seen in the first quarter of this year is extraordinary capital inflows into the United States,” said Crabb. “So it’s not that there isn’t money around, it’s just that it is being redirected into where the best opportunities are.”

Chinese investment in property has been a sensitive issue in Australia, home to the most expensive houses in the world after Hong Kong.

While authorities have pointed to other rationale for recent rule changes — from fraud concerns, in the case of the banks, to the belief non-residents should pay their “fair share” in tax, in the case of Victoria — many Australians have blamed Chinese for pricing first-time buyers out of the market by contributing to sky-high prices.

Such anxieties even sparked a parliamentary inquiry in 2014 to look into the effect of foreign buying on prices. The resulting report concluded that inward investment actually helped to lower prices by increasing supply.

“I think there is a minority of voices out there that make very loud statements and a lot of fear mongering about Chinese investment,” said James Laurenceson, deputy director of the Australia-China Relations Institute at the University of Technology Sydney. “Let’s not forget that Australia’s policy framework encourages foreign investment when it comes to new apartments and new housing.”

Crabb said that there also existed an “outrageous oversimplification” about the kind of buyer typically classed as Chinese.

“I will put it to you this way: A Chinese-looking fellow comes along and buys a house. Is he an investor, is he an immigrant or is he a fourth-generation Australian, where…his family has been here for 100 years?” he said. “And the answer is, how would you know? The answer is no body would know. So there’s a lot of noise around this whole issue of Chinese.”

Despite the less welcoming environment, however, few expect Chinese buying to drop off overall, the increased wariness of some investors notwithstanding. Among 150 Chinese real estate agencies recently surveyed by property website Investorist, all but seven predicted that 2016 would surpass last year in terms of sales.

“We may not see the incredibly large percentage growth rates each year, but do I expect it go grow? Yes, and I certainly don’t expect it to collapse,” said Laurenceson, pointing to rising Chinese incomes and the desire of many parents to give their child an English-language education. “All the reasons that Chinese have invested in Australian real estate over the last few years — they’re still real, they’re still factors, they’re still attractive reasons for Chinese to hold real estate assets.”

John Power is a journalist who has reported on North and South Korea since 2010. His work has appeared in outlets including The Daily Mail, The Christian Science Monitor, Mashable, NK News, Asian Geographic, The Diplomat, The Korea Herald and Narratively, among others. He is currently based in Melbourne, Australia.

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