Two major challenges facing Chinese investors

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Despite the many challenges and hurdles placed in their way, Chinese investors remain undaunted when it comes to investing in Australian property.

The value of approved foreign investment rose to about $248bn in 2015-2016, according to a newly released report from the Foreign Investment Review Board (FIRB). This surge was predominantly driven by increased investment in the real estate sector. “China ($47.3 billion) remains our largest source of approved foreign investment, followed by the United States ($31.0 billion),” the FIRB report said.

Two of the biggest challenges affecting Chinese investors right now are the vacancy tax proposed in the federal budget and the state of Chinese investment flows into Australia.

The vacancy tax

According to the recently announced 2017-18 federal budget, foreign property owners who keep their property vacant for at least six months will face a levy of at least $5,000 per annum. The new levy is aimed at ensuring foreign investors are actually contributing to housing supply and aren’t simply offshoring their capital with no intention of occupying or leasing their property.

“About 31% of Chinese buyers are investors not planning to occupy the property they buy. That’s the group potentially most affected by the vacancy tax,” said Sue Jong, chief of operations for Juwai.com, a Chinese language international property website.

“Even within this group, most are unaffected because they can’t afford to leave their property empty in the first place. They need the rental income for their investment to succeed. That’s one reason rental guarantees are so popular with Chinese investment-oriented buyers,” she said.

One category of buyers who might be inclined to leave their properties empty for months at a time are the high-net-worth, lifestyle buyers. “Because of their wealth, they are not expected to change their behaviour due to the tax. About 13 out of every 100 Chinese buyers we work with is enquiring about property worth at least AUD$1 million and fits into this category. Many of these buyers retain a primary residence in China and use their Australian home only part time.”

Contrary to popular belief, the biggest category of Chinese buyers aren’t investors at all. “Nearly three-quarters of Chinese buyers are not affected by the proposed vacancy tax because they intend to occupy the property they are buying,” Jong said. “Of course, local Chinese buyers are not targeted by these rules, including recent immigrants, of which there are many.”

Chinese investment flows into Australia

Due to fears of the potentially strangling impact of Beijing’s capital controls and economic reforms, many in Australia worry that Chinese investment is dropping.

“Juwai.com believes that in 2017, Chinese property investment is likely to be lower than in 2016 but will still be close to its recent record levels. For example, first quarter Chinese buying inquiries via Juwai.com were significantly lower than in the same period in 2016 but were nearly identical to the first quarter of 2015 — which set a record at the time,” Jong said.

“In just the past few weeks, Chinese investors have announced more than $6.4 billion of new or planned acquisitions of Australian property. Chinese investors at both the retail and the institutional level are excited by the opportunities in Australia.”


Related stories:
Sydneysiders Blame Foreigners For Rise In House Prices
‘Migrant Millionaires’ Fueled Growth In Property Last Year

 

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