RESEARCHRESIDENTIAL PROPERTY

Chinese buyers get lucky, falling dollar saves $88.8k

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THE plummeting Australian dollar against the Yuan is delivering significant savings of at least $88,800 for Chinese buyers. Combined with Beijing relaxing its capital controls, interest in Aussie residential real estate has bounced back for the first time in three years.

According to the latest Juwai report, Chinese buyer enquiries have posted two consecutive quarters of year-on-year growth, for the first time since 2016.

In the first quarter, Chinese demand was up 40% compared to a year earlier. That followed a 54% gain in the fourth quarter.

“Chinese buyer demand for Australian residential property hit its absolute bottom in 2017,” Juwai CEO Carrie Law said.

Earlier this year the Foreign Investment Review Board report shows Chinese investment in residential real estate crashed in 2018 to $12.5 billion from $17.5 billion in 2017, $72.4 billion in 2016 and $60.7 billion in 2015. Notably, Chinese investment in new residential developments fell by $55 billion in two years.

But Law said the recent quarters of slow recovery could herald the light at the end of the tunnel for Chinese residential property investment in Australia.

She said Australia continues to appeal to Chinese buyers because three Australian cities rank in the top 10 of the world’s most liveable cities. Australians are also the wealthiest people in the world and ranks first globally with a median individual net worth of US$191,453, ahead of Switzerland (US$183,339) and Canada (US$106,342).

“Chinese demand is driven by growing wealth, a desire to store some assets ‘safely’ overseas, education, travel, commercial ties, immigration and high net worth immigration, and environment and lifestyle. 83% of Chinese consumers cite education as their reason for immigration, 69% cite environment, 57% cite food safety, and 28% cite asset security.

“Young adults from China have helped turn education into Australia’s third largest export industry and largest single services export. Chinese students generate more export education income than students from the next seven highest-ranking countries combined,”

She added that anti-student policies in the United Kingdom and United States are likely to push Australia’s attractiveness even higher.

Further boosting Australia’s attraction is the falling dollar, which has served to counterbalance the foreign buyer taxes and surcharges introduced by the federal and state governments.

Juwai found the AUD has lost 11.1% of its value against the Chinese Yuan since July 2018. That compares to the 8% rate of the highest foreign buyer taxes, which are in New South Wales and Victoria.

“A buyer holding Yuan today needs the equivalent of $88,800 less in funds compared to 2017 to purchase an $800,000 dwelling,”

According to Juwai, Melbourne remains the most popular city with buyers making 83% more enquiries about acquiring Melbourne property than they do Sydney.

But that should not come as a surprise because Victoria has the biggest foreign student enrolment, with more than one-third of the Australian total compared to New South Wales with about 30%, Queensland with 13%, Western Australia with 9%, South Australia with 7%, Canberra with 3%, Tasmania with 1% and the Northern Territory has less than 1%.

The fastest growing cities attracting interest are Hobart, Brisbane, and Canberra. In Hobart, there were 77% more enquiries in 2018 than the year before. Brisbane was the second fastest with 30.8% more enquiries, followed by Canberra with 24.6% growth. Law said Brisbane is becoming a real alternative for the two traditional gateway cities of Melbourne and Sydney. However, Hobart and Canberra continue to receive significantly less buyer interest than Sydney or Melbourne.

Melbourne received 43.8% of total buyer enquiries, followed by Sydney with 23.9%, Brisbane 10.1%, Perth and Adelaide 6.1%, the Gold Coast 3.7%, Canberra 3.6%, and Hobart 2.6%.

Looking ahead, 44% of Chinese investors plan to increase their investments in international property in the next three years.

Law said the reduction of the China’s regime of capital controls provides the biggest opportunity by far to boost Chinese investment in Australian residential real estate.

Having said that, Law expects Chinese buying to remain essentially flat in 2019 – with upside risks – and to begin growing again with the market recovery. She said Chinese buyers are aware that house prices in Australia have declined.

“Chinese buyers can spot a plummeting market just as well as anyone else. With market experts reporting that the annual rate of decline in dwelling values is now deeper than during the Global Financial Crisis of 2008, the number of monthly homes has dropped at least 15% below the long-term average. The desire to avoid overpaying at a time of falling prices is a deterrent to Chinese buying in 2019.

“We’re not there yet, but the trend of the past 15 months suggests that Chinese buying will come back to more substantial levels. When the overhang of excess inventory is absorbed and lower prices entice buyers back into the market, we expect Chinese buyer sentiment to turn, as well. Chinese buyers are likely to be interested in investing in the climbing market,”

Law said other factors that could significantly boost Chinese demand are the reduction of foreign buyer taxes.

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