What could the China free trade deal mean for investment?

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Expert Advice by Rich Harvey
09/12/2014

As most of you will already know, Australia and China recently signed a landmark free trade deal that is expected to have many positive effects for many industries - including property. The Department of Foreign Affairs and Trade notes that Chinese investment in Australia already rival its level of investment in the United States. Currently, China has spent $32 billion here.
So with more barriers between these nations broken down, what is going to change in the Australian property investment landscape?

Higher thresholds for big business
One landmark aspect of the China - Australia Free Trade Agreement (ChAFTA) is the significant increase to the Foreign Investment Review Board (FIRB) threshold for private investment into non-sensitive sectors. This has increased from $248 million to $1,078 million.
On a larger scale, the threshold changes could see a lot of investment in infrastructure and business throughout the country, which could include extensive housing projects. It is an important development to watch, even if nothing has been announced specifically for residential property yet.

Impacts for property
Despite the threshold for investment increasing, other issues pertaining to the FIRB do not change under the ChAFTA. The screening process will still apply for all foreign investment, which relates to those hoping to buy into the lucrative Australian property market.
Remember that to get the best knowledge of the Australian market and ensure you have someone on the ground working in your investment interests, a buyers agent is a great option.

What do Foreign Buyers want?
Australia is a very popular market with foreign buyers. They are all looking for similar things:
  • A very attractive place to live!
  • Stable economic and political environment compared to China
  • A place to store their wealth outside of Chinese control
  • Ability to get around economic disincentives to have multiple investment properties in China
  • Good quality investments and a place for kids to attend university and gain education

What portion of the market do Foreign Buyers make up?
It is hard to say exactly what proportion as there is a lack of comprehensive data, but according to our sources, foreign buyers make up around 1% of the established housing market – the average purchase price for foreign buyers is $1.2 million so we can’t say they are pricing out first home buyers (they are in a completely different market).

For the Off-plan and brand new property market, foreign buyers make up around 8%.   Data from FIRB suggests that there were 5500 applications this year.

According to the Australian Policy Office statistics on foreign investment in Australia across 2013, there was a huge leap in overseas spending on property and business in Australia. These figures show that between 2012 and 2013, foreign investment increased by $2.87 billion.
The recent Federal parliamentary report released in November into foreign investment in Australia concludes that foreign investors are vital for the property market by creating demand for new dwellings and giving a much needed boost to the construction industry.

Some the key highlights from the inquiry include:
1.       Data on foreign investment in residential real estate is poor and needs improvement.
2.       Existing foreign investment framework (FIF) be retained in its current form, but critical of FIRB leadership.
3.       Improve audit, compliance and enforcement of FIF.
4.       A $1500 administrative fee be charged to foreign investors in residential real estate
5.       A civil penalty regime for FIF breaches to be introduced.
6.       Criminal penalties to foreign investors on FIF breaches (on resi RE), also apply to service provides who knowingly assists them.
7.       Any capital gains (after divestment of the illegally purchased property) be retained by the Government.
8.       FIF rules to explicitly require a temporary resident to divest an established property within three months if it ceases to be their primary residence.
9.       A national register of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate to be established by Fed and State governments.
10.   An alert system for the expiry of temporary visas be established, so that Treasury can issue property divestment orders in cases of non-compliance.
11.   Residential property sold under off-the-plan certificates that is marketed for sale overseas, must be marketed in Australia for the same period of time.
12.   Foreign investor purchases of resi RE be considered as a possible area of investigation for improvements in anti-money laundering and counter-terrorism financing.
13.   Government departments make greater use of the databases held by other government entities to improve operations of FIF.

Whether you reside in Sydney or Shanghai, it is clear that you will face stiff competition entering the Australian property market. To get as much of an edge as possible, it is essential to engage a buyers agent that can provide independent advice on values and the area.. They can identify growth in areas where it may not be obvious, and navigate the crowded market on your behalf. They can keep a keen eye on the intricate details of Australian property when you find yourself unable to.



Rich Harvey
Managing Director, propertybuyer
This article was written by Rich Harvey, founder and Managing Director of propertybuyer, Sydney & Australia’s most awarded Buyers Agents. Propertybuyer helps property investors and home buyers search and negotiate the right property at the right price, everytime.  For further details please visit www.propertybuyer.com.au or call +61 2 9975 3311 or 1300 655 615.


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Disclaimer: while due care is taken, the viewpoints expressed by contributors  do not necessarily reflect the opinions of Your Investment Property.

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