China’s high-rollers are returning to Australian property markets after a twelve-month hiatus, as they search for an investment bolthole until the dust settles on their country’s vitriolic trade war with the United States.
The renminbi’s sharp appreciation against the Aussie dollar has helped, with housing prices in some quality segments now 7-8% lower than they were at the peak of the Chinese inflows about two or three years ago.
Real estate website Juwai, which specializes in Chinese clients, reported an average 7.2% rise in property searches in Australia in the first two quarters of the year compared with the same period in 2017.
“Many are suspending or reducing their investment in American property while the politics gets sorted out, to take advantage of Australia’s weaker currency and relative buyer’s market,” Juwai chief executive Carrie Law told real estate website Domain.
“The Australian dollar is still down about 7% from its peak against the renminbi last year, and the US dollar is up just over 8% compared with its recent low point.”
Inflows slumped in 2017 due to tighter outbound investment rules imposed by Chinese authorities and stricter lending standards by Australian financial institutions.
Some potential Chinese investors were also apparently put off by the increasingly strident tone of a debate on foreign meddling in Australian government and security.
There were 2,008 approved purchases of established homes by foreigners in the 2016-17 financial year, according to the Foreign Investment Review Board, a two-thirds decline from the 5,877 deals in the previous year.
This does not include purchases of new homes; as there are no restrictions on this type of property, they are not reviewed by the investment board.
Chinese buyers also slip the embargo on the purchases of established homes by using their children as proxies. Students on temporary visas are allowed to buy new properties and one existing home, as long as they live in the established house and sell it within three months of leaving Australia.
Despite the decline, Australia remained the second-most popular choice for Chinese real estate investors last year behind the US, as it was in 2016, Juwai said. Canada, the UK, Thailand, Vietnam, Japan, Spain, France, Singapore, New Zealand and Malaysia were the other leading choices of Chinese buyers.
New Zealand will drop off the list after banning foreigners from buying existing homes in a bid to cool housing prices. The fastest-growing market is Vietnam, which posted a 483% rise last year in the number of Chinese making buyer inquiries. Thailand saw a 114% increase and Malaysia 64%.
China was still the largest source of Australian foreign investment in real estate in 2016-17, well ahead of second-ranking Canada. The United States, Singapore and Malaysia were the other leading foreign sources.
Australian housing approvals fell by 67% to just 13,198 in 2016-17, partly because of the drop in Chinese demand. The value of approvals also declined by 65.2% to a combined US$18.4 billion worth of investment.
One consequence has been the biggest slump in housing prices since 2012. Average prices were down 1.6% in August 2018 with Sydney property losing 5.4% of its value, Perth down 2.3% and Melbourne 0.5%. Northerly Darwin, not regarded as a major market for foreign buyers, fell 6.2%.
Stamp duty concessions in some states have revived cheaper market tiers, but brokers are unsure whether the Chinese, who mostly target high-end segments, are back to stay.
While some have been able to skirt foreign exchange regulations by funneling funds through Hong Kong, they may be deterred by the price slump if they are looking for investment properties.
Few expect a return to the extravagance of 2015 and 2016, when cashed-up Chinese splashed US$10 million or more on bayside mansions that often were occupied for only a few weeks a year.
Young fuerdai (rich second-generation) Chinese drove Porsches to college and triggered a boom in luxury goods sales and cosmetic surgery; at weekends, they threw gaudy parties that raised eyebrows even in bohemian Sydney circles.
Wary of reigniting the debate over China’s growing influence in Australian politics, security and society, new buyers are keeping a more discreet profile, even if it means passing up on the purchase of a prized house.
“I’ve had people say, ‘This is a very beautiful house but I will be in the headlines. People will think I’m showing off, buying the most expensive house’,” said Sydney real estate agent Lulu Pallier, who is originally from Shanghai. “They have lately had that kind of concern in their minds.“