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Carrie Law CEO and director at Juwai.com explains why 2018 will bring a new era for Chinese investment
In June, the Foreign Investment Review Board (FIRB) released its most recent report on foreign investment in Australia. The most interesting data in this document covered foreign investment in residential property.
The report ranks China as the fastest-growing and biggest source of investment in the 2016/17 financial year. China accounted for more than double the value of any other country’s approved real estate investments in Australia. With the highest approved expenditure of all countries, it also accounted for more than the combined value of the second- and third-ranking countries. The top three were China at $15.3m, Canada at $7.3m, and the US at $6.8m.
Victoria is the most popular state for residential real estate approvals, followed by NSW. These two states account for 73% of all foreign acquisitions of residential real estate, according to the FIRB report. Queensland accounts for 18%, WA for 5%, SA for 3%, and the ACT for 1%.
Juwai.com’s data shows something similar: the top five cities for Chinese buyers are Melbourne, Sydney, Brisbane, Adelaide and Canberra – with the Gold Coast and Perth also putting in a strong showing.
One key FIRB finding was that the introduction of application fees in December 2015 changed investor behaviour.
The fees can be more than $100,000 for a single application for a luxury property, although for the least expensive homes the fees start at just $5,500.
Naturally, as soon as these steep fees were introduced, the number of applications plummeted and, naturally, investors began applying only for the properties they felt they had a true intention and opportunity to actually purchase.
Of all foreign investment approved by the FIRB across every sector of the economy, real estate accounted for more than one third: residential real estate comprised 13% of approvals and commercial 23%. Eighty-eight per cent of approved residential investment was for new developments rather than existing property.
The FIRB report covers the financial year ending 30 June 2017. It’s the most recent government data publicly available, but it’s still a year old. If you’re looking for some insight into what’s happening with Chinese investment today, here is the latest data from Juwai.com: Chinese buying enquiries for Australian property were 5.7% higher in March this year and 22.3% higher in April.
Those are the hard numbers. In terms of speculating about the future, the year 2018 could be the beginning of a new phase of Chinese investment. The environment is changing. Rather than threatening further capital controls, the Beijing government is hinting that it may unwind them. Chinese buyers are beginning to anticipate a time, perhaps this year, when investing overseas will become easier once again.
FT Confidential Research reports that a majority of Chinese households intend to increase their offshore investments in the coming two years. For brokers and mortgage originators, what this means is that Chinese buying has declined since the golden year of 2016 – when unsurpassed growth rates took it to record levels – but it is still significant. It’s quite possible to focus on just Chinese buyers and make good money.
When working with buyers from China, it is important to understand the special requirements lending institutions have when dealing with offshore income. It is also useful to have relationships with non-bank lenders who can provide financing to foreign buyers of Australian property.
Carrie Law
CEO and director,
Juwai.com
