The return of Chinese buyers has regulators worried

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Australia’s spring real estate season has seen the defiant return of Chinese buyers, who’re undaunted by lending restrictions aimed at curbing their interest in the country’s robust housing market.

Financiers and real estate agents say Asian investors have found new avenues to re-enter the Aussie property market, including targeting cheaper homes and settling in cash. Other investors have turned to groups of wealthy individuals or foreign-owned banks for loans after Aussie banks turned off funding to overseas buyers earlier this year.

The renewed buying frenzy has reignited fears that property prices are in a bubble, which in turn has alarmed regulators.

An apartment with a view of Sydney Harbour Bridge now costs more than a similar apartment with a view of the Eiffel Tower, research from property group Knight Frank indicates.  

“We're now seeing people even from mid-tier Chinese cities such as Chengdu or Shenzhen coming into Australia and buying,” said David Chatterjee, director of Melbourne-based Lucror Property. “Most of the house and land buyers that we see are cash buyers.”

The Reserve Bank of Australia has also expressed concerns that the booming apartment sector could be a key risk to financial stability, especially since interest rates are now at record lows.

The Big Four tightened funding to foreigners earlier this year, citing higher credit risks, causing demand from offshore buyers to almost dry up. Following that lull, inquires from Chinse buyers have rebounded. They were up 34% in the September quarter for properties up to $1 million compared with 12% in June, according to data from Juwai.com, the largest international property website in China.

RBA had hoped that tighter lending standards for foreigners, together with the increasing supply of homes, would help cool the property market. However, the recent rise in house prices has the central bank worried again.

While demand from China has driven up prices, the resurgence of Chinese interest in Aussie real estate could assuage recent concerns about the looming glut in newly-constructed apartments.

"There is no doubt the apartment sector is probably overbuilt and there will be an adjustment there," said RBA board member Ian Harper.

Key affordability ratios—namely housing debt to home values, debt as a share of household assets—were falling, blunting the potential for a major crash across the market.

On the other hand, some analysts warn that Australia is still very much in bubble territory. Amy Reynolds, a strategist at Hong Kong-based hedge fund manager Apt Capital Management, believes an imminent correction could result in prices falling up to 15%.

"We don't see how there could be a soft landing. When the bubble does burst there is going to be a shift in sentiment and things are going to move quickly," she said.


Related stories:
Chinese Investors Are Drawn To Perks Of Investing In Aussie Property
Chinese Investors Make A Comeback In Sydney’s Property Market

 

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