Chinese property investors are once again setting their sights on Australian real estate with gusto, after prolonged lockdowns in China were finally lifted.
Data from international real estate group Juwai IQI found Australia has ranked as the world’s number one country for Chinese buyers for the second year in a row, with 70,000 new Chinese migrants expected in the country by 2025.
Australia has now regained its status as the top place to invest after the pandemic saw outbound travel grind to a halt, and relations between Beijing and Canberra have improved, according to Juwai.
What’s driving the influx of Chinese property investors?
China’s second-largest property developer and the world’s most indebted company, Evergrande Group, is in serious financial trouble, recently filing for bankruptcy protection in the United States. Evergrande owns more than 1,300 projects in over 280 cities across China. Meanwhile, China’s biggest property developer Country Garden is also on the brink of collapse.
China’s property sector is facing a sharp deterioration as a result of tougher banking regulations, a slowing economy and massive over-supply pushing developers to the brink. Because of this, Chinese buyers are attracted to Australia’s stable economy, attractive lifestyle and the potential for long-term returns.
“The majority of the wealth for Chinese is and always will be in property. Australia is a safe and stable investment for the Chinese which is why appetite is high,” Principal at Plus Agency and Judge at Asia Property Awards Sydney Peter Li told Your Investment Property Magazine.
“In the last quarter, out of 100 foreign buyers in Australia 56% were Chinese buyers.”
A better quality of life and getting more bang for their buck are also enticing Chinese buyers, says PRD Chief Economist Dr Diaswati Mardiasmo.
“Our property prices are still considered affordable compared to many countries, and you are getting more space and square meterage for the purchase price, compared to say an apartment or house in Beijing or Guangzhou or Shenzhen,” she told Your Investment Property Magazine.
According to the Juwai report, there are several other contributing factors behind the resurgence of Chinese property buyers - an ongoing recovery in overseas travel post-pandemic, an accumulation of savings accelerated by the pandemic, and a desire to look outward for real estate investment.
Report author and Juwai IQI co-founder and group CEO Kashif Ansari said a weak domestic market in China means cashed-up Chinese buyers are eyeing up overseas opportunities to invest their money.
“Chinese investors are drawn to real estate investment as an easily understood category that is expected to provide price appreciation and dependable long-term foreign currency income that is uncorrelated with the Chinese economic cycle,” he said.
“In this era of higher interest rates, Chinese investors with access to ready capital have an advantage over local buyers.”
Mr Ansari said Chinese nationals are also being drawn overseas by an unprecedented immigration boom in rich countries.
“Nearly a quarter of a million expats from China are expected to move to just three countries during 2023, 2024 and 2025. These countries are Australia, Canada and the United States,” Mr Ansari said.
“Chinese citizens are the world’s most numerous participants in golden visa programs. In 2021, Chinese made up 46% of approved applicants in two of the most popular programs: Greece and Australia.
What could this mean for Australia’s rental crisis?
Naturally, there are fears that increasing levels of foreign investment and migration could worsen the current housing crisis in Australia by taking more supply away from the market, driving up demand and in turn, prices.
However, under rules set by the Foreign Investment Review Board (FIRB), foreign investors are generally prohibited from purchasing established dwellings, meaning they can only purchase new buildings (such as off the plan) or vacant land. An exception to this rule is if a foreign investor plans on redeveloping an existing property - approval for this is subject to the fact that two dwellings need to be constructed - adding to supply.
Foreign investors who are non-residents do not occupy the property, meaning it must be leased out to local renters. Foreign investors also play a significant role in the construction of large projects going ahead, with many big residential or mixed-use projects requiring a certain percentage of pre-sales before a lender will sign off. A good portion of these pre-sales is made up of foreign investors so if this was lost, many residential developments couldn’t go ahead, as Dr Mardiasmo points out.
“At present, many developers are questioning the financial viability of their new projects, regardless of property type, due to higher costs which leads to lower profit margins,” she said.
“With many local buyers feeling the pinch of cost of living, higher rates, fewer household savings – basically moving to this new economic phase – demand for new stock has tapered off slightly and can be sticky.
“Having Chinese property investors - who have upped their spending on Aussie homes by $1 billion in the past financial year - on board and making up for the potential domestic demand loss, can assist with a new project’s viability.”
It is worth noting that Chinese buyer demographics are shifting, with nine out of 10 Chinese buyers purchasing properties to live in versus for investment purposes, which has previously been the norm, according to Mr Li.
“There is a large community of Chinese coming to Australia with a long-term investing mindset. They are looking for long-term, not only for themselves but for the generations that will eventually come and settle in Australia,” Mr Li said.
“They are immigrating here to set roots. They want to see their kids settle, grow up and learn the Australian way. That’s why we are seeing a long-term mindset and an appetite to snap up unoccupied properties quickly.
“They are buying townhouses, duplexes, and even five-bedroom apartments as they see the Australian market as the most stable.”
Despite this, Mr Li does not believe it will negatively impact the market.
“It will help the property market as we’ve historically seen, in particular areas where Chinese invest, the value of the areas increase. For instance, in Sydney areas like Chatswood and Strathfield, with a heavy Chinese influence, have seen better infrastructure and value increase,” he said.
“It pushes for investment in development and an equal split of development approval for both commercial and residential.”
Dr Mardiasmo said it’s a little bit of column A and a little bit of column B.
“Yes, the Chinese investors are ‘taking up’ some of this new stock, especially as most Chinese buyers in the past year have been purchasing for use and planned to become Australian citizens. However, there is also another potential alternative – the new project does not go ahead, and the planned new stock does not come onto the market,” she said.
“This can impact any local buyers who were counting on that new stock, whether as their new home or investment. Which of course has a multiplier effect on less supply on the rental market and higher demand for a property elsewhere – potentially increasing competition or prices in another area.
“So it's all a little bit of a see-saw. Yes, Chinese buyers take up some of our supply, and increasingly so, but at the same time, they are also a vehicle for more supply as an indirect effect on local buyers and investors. And at the moment we need supply – whether for owner occupiers or renters, we need supply.”
Looking ahead, Dr Mardiasmo said we can expect to see a lot more Chinese investment next year and beyond.
“The world is becoming less and less restricted, in the sense that people and capital are moving around with higher ease. Further, the Federal Government has not made any significant changes in foreign investment policy, regardless of sector,” she said.
“The message to the international world is still that Australia is open for business, a profitable and easy place to do business, and a great place to live. That is bound to attract more foreign investment.
“What will slow down Chinese investment, at present, is domestic Chinese policies and economic conditions. They are one of the few countries who are yet to go through multiple cash rate hikes, so there is a chance that they too will go through high inflationary pressures and changing economic conditions.”