VIC Excerpt from the 2014 March Market report

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China: Melbourne’s game changer

Viewing Chinese expansion into international markets as something of a threat may be a tired cliché but China investor activity into Melbourne is having a far reaching impact – not all of it good   
 
Sixty-three point one million people. It’s more than the population of the UK, France or Italy and it’s the amount of China residents estimated to have the financial capacity to be able to purchase property outside of their country. And they’re coming to Melbourne.

The Chinese-language Juwai web portal estimates that these cashed up Chinese investors conduct close to 90 million online searches for property every month. They are armed and ready to invest outside China and they’ve identified Australia – but more particularly, Melbourne – as one of their top choices of investment destination.

Colliers International research shows that Chinese property investments in Australia have grown by more than 5,000% since 2007 and resulted in some $871m in real estate purchases in 2013 alone. One of the more prominent of these transactions happened last year when Melbourne CBD property 229-234 Franklin Street sold for $17m to a private Chinese investor.

Colliers national director of research Nerida Conisbee says Chinese investment activity is expected to grow in the next decade and could be a potential game changer for a lot of markets. This is in light of first home buyers becoming increasingly priced out of the market just as investor activity is intensifying. It has also helped that regulations in China are being changed to better support overseas investment at exactly the same time Chinese banks have been imposing stricter rules on the release of credit.

“Changes to regulations surrounding investment into property by Chinese investors is expected to lead to significant amounts of capital entering Australia,” Conisbee says.

Colliers International CEO for Australia and New Zealand John Kerry adds that strong investment conditions were the defining feature of the Australian property market over 2012 and 2013 and this has created an environment that encourages more Chinese investment.

“Our market has been considered a safe haven with low interest rates and attractive yields [that] continue to attract international investors,” he says.

The building bonanza

Australian Property Monitors senior economist Andrew Wilson says that there is an inherent danger in the way that Chinese investment into Melbourne has been going about.

He says that the city property market has traditionally followed a fairly predictable pattern of growth, decline and recovery, followed by another cycle of growth. In the growth period, property prices increase, which encourages developers to build more houses.

Eventually, developers build too many houses and as demand slows, prices fall. This gets developers to halt further housing projects and building activity subsides for a period – at least until all the excess houses on the market are absorbed.

With Chinese and other overseas investors in the picture this pattern has been broken. “It will be worth keeping an eye on international investor movements in Melbourne property because some of the models they are following do not take into account normal supply and demand imperatives,” Wilson says.

A well-established view is that many Chinese investment firms and some individuals take an extremely long-term view of their investments, often only expecting to see the fruits of their investments some 30 years into the future.
 
Armed with this philosophy, Chinese investors have not shied away from putting their money into massive residential development projects in the Melbourne inner city, even though it is widely understood that demand for apartments is waning because of an oversupply of new properties. This has ensured that developers continue to have a buying market for their projects, encouraging a level of building activity that wouldn’t normally be undertaken following traditional supply and demand patterns.

While it’s also true that no two investors are the same and that not all overseas investors take a three decade view, patience as a virtue of these investors would certainly help to explain Melbourne’s December vacancy rate of 3.4% – well above the mark of what is generally considered a market in equilibrium (3%) and the fifth consecutive quarter of vacancy increases.

Suburb to watch
Scoresby


Adrian Ferris of Stevenson Ferris explains why Scoresby is a great pocket of real estate activity

Selling points
Housing around 2,000 dwellings, Scoresby properties have seen consistent long-term capital growth over the years as they aren’t as susceptible to the price fluctuations of larger suburbs. Residents have fantastic facilities close at hand. Scoresby Village Shopping Centre services the community and there is a good choice of primary and secondary schools in the area. Public transport options are great and include the Eastlink, which is at the suburb’s doorstep.
 
Most sought-after properties
Since prices are lower and offer greater value for money than neighbouring Wantirna South, Wheelers Hill and Glen Waverley, Scoresby has always been well sought after. Properties that suit first home buyers are the most in demand and are typically three bedroom homes with one bathroom.

Local industries
Scoresby has a great mix of residential, commercial, industrial, retail, office, schools and recreation facilities close at hand in respective zones. The best streets for residential property buyers are the quiet courts off streets like Berrabri Drive, Borg Crescent and Ferntree Gully Road.

Recent changes
The addition of Eastlink (Scoresby Freeway) has allowed for direct non-stop access to the city within 30 minutes and access to popular beaches and holiday spots within 45 minutes in the other direction. For residents who use public transport there are numerous bus services linking with neighbouring suburbs.

 

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