Not so long ago, mainland Chinese buyers helped drive Australia’s last property boom. Their investment reached a staggering $32 billion in 2015–16. It was down to just $6 billion in the last financial year, half the amount recorded in the previous year. Now, Americans have replaced Chinese investors as the largest buyers of Australian real estate.
Have the Chinese abandoned the local property market?
According to the Foreign Investment Review Board (FIRB), China ranked fifth as a source of real estate investment in 2018–19, down from the top spot for the first time in many years.
Investments from the US and Canada soared to $19.6 billion and $13.3 billion, respectively, making them Australia’s two largest sources of property investment. Singapore and Hong Kong came in third and fourth.
“The reduction in proposed investment applications, by value, from China reflects an ongoing downward trend in the value of Chinese investment from its peak in 2015–16,” says FIRB Chair David Irvine AO. “This can be attributed to a range of factors such as China’s internal domestic policy settings, including increased scrutiny of outbound investment and stricter capital controls.”
Figure 1: Australian investment approvals by country and sector, 2018–19
Source: FIRB Annual Report 2018–19
Australia’s own restrictions on foreign investments have also contributed to the fall in Chinese demand for property. These include less favourable tax treatment, additional or higher charges, and a cap on new development sales. More recently, the Australian Government imposed an annual vacancy charge on foreign owners whose property is not occupied or available for rent for at least six months in a 12-month period.
States also increased taxes on foreign investor purchases. The NSW Government doubled the stamp duty for foreign property buyers to 8% and raised the annual land tax surcharge from 0.75% to 2%. In Victoria, the state government hiked the stamp duty surcharge on foreign purchases of residential property from 3% to 7%.
Is a comeback likely?
There are signs that Chinese buyers might be returning to Australia’s property market, according to Georg Chmiel, Executive Chairman of Chinese real estate firm Juwai IQI.
“Our buyer enquiry data shows that Chinese investment in Australian real estate has fallen for a long time, but the tide may have turned because Chinese buyers seem to have been coming back since the second half of last year,” says Chmiel in a report.
Juwai IQI says the recent return in Chinese buyer interest is partly due to a weakening Australian dollar. Its report shows the coronavirus pandemic has not deterred some Chinese investors from considering buying property overseas, including in Australia.
“Australia was already appealing as a safe country where your investments are protected,” says Chmiel. “Now, the country seems to have managed the pandemic well. That makes it even more appealing to foreign buyers.”
In April, Chinese investors made twice the number of enquiries about Australian property than in any other month so far in 2020 – and 50% more than in any month in the second half of 2019, according to Chmiel.
“The pandemic has created exceptional circumstances and while Chinese buyer demand in January remained strong, the lockdown in Victoria forced the number of Chinese buyer enquiries down in February and March,” he says.
Juwai IQI data shows Chinese buyers usually prefer Melbourne over other Australian cities.
“There was probably a great deal of pent-up activity taking place in April, so we don’t expect Chinese buyer enquiries to remain at this height for the rest of the year, but the data shows Chinese buyers are back,” says Chmiel.