HIGHER property taxes and souring relations between Beijing and Canberra will stifle a new wave of Chinese investment in Australian residential real estate, according to analysts CLSA.
According a CLSA survey of 1,600 Chinese buyers, the biggest barrier is not the Chinese government restrictions on capital, but the transaction costs and taxes in the foreign country of choice.
In the case of Australia, the situation has been exacerbated by the trade tensions between China and Australia.
CLSA’s Australia property analyst James Druce said there is no expectation there will be another wave of Chinese investment in Australia soon.
“This is clearly evidenced in Hong Kong where foreign stamp duty is c.30% and in Australia is effectively 12-14%. Importantly, Chinese government restrictions on capital seem to be less important than the host country’s own restrictions,”
The absence of Chinese buyers has already had an impact on the market.
CLSA found Australian apartment approvals have retraced to one-third of the peak of Chinese buying in 2017, dropping from 12,000 per month to circa 4,000 today.
“Lendlease and Mirvac are most exposed to Australian apartments at around 10% of Ebit and up to 50% at the peak.
“Presently, there is no expectation that we will see another wave of Chinese investment in Australian residential real estate given deteriorating government relations and existing imposts on foreign buying, which includes a 12-14% stamp duty, capital gains tax, and a land tax surcharge,”
“As overseas students return, this will necessarily pick up because the current numbers are so low, but we do not expect anything significant. At present, the Australian residential market is in a firm uptrend, but the apartment sector is lagging,” Druce said.
Similarly, in Hong Kong back in 4Q 2011, mainland Chinese purchased 17% of all primary and secondary units. That’s dropped to 7-8% after introduction of the 15% buyer’s stamp duty in October 2012, although introduction of the 15% Double Stamp Duty in November 2016 did not impact the ratio much.
But Covid travel restrictions have prevented mainland Chinese from travelling to Hong Kong and buying property. The ratio further dropped to 5% in 2Q 2020 and was mainly from mainland Chinese who live in Hong Kong.
The survey found Hong Kong has become less popular among mainland Chinese since local unrest in 2019 with only 15% of potential buyers surveyed considering purchasing property in Hong Kong, ranked fifth among different cities.
“We do expect demand to come back from mainland Chinese who live onshore after the lifting of travel restrictions, but it should take time and is not free from possible disruption from local uncertainties,” Druce said.
Meanwhile the survey found Chinese buyers are turning to other countries with Japan leading the way in terms of a preferred destination, which was almost double that of the nearest country followed by the United States, Singapore, and South Korea.
Within the Asia Pacific region, Singapore is benefiting from political uncertainty in Australia and Hong Kong.
“By city, Seoul and Singapore are the preferred destinations, which are relatively close to China geographically. Interestingly, the major western cities such as Paris, New York, and Los Angeles are more popular than Sydney, Vancouver, and Toronto, which have historically been more migration friendly. Certainly, the recent breakdown in relations between Australia and China does not bode well,” Druce said.
Overall CLSA found the global pandemic has had significant effect on Chinese buyers appetite.
According to the survey, 5% of respondents indicated they intended to purchase an overseas property in the next 12 months, which is larger than anticipated but reflects the middle to high income skew in the sample.
But 57% of survey respondents were less incentivised to buy property overseas because of the pandemic.
“The pandemic has hit demand hard. By market, buyers are focussed mainly on countries close to China such as Japan, Korea, and Singapore, as well as traditional stores of wealth the US and the UK. The main obstacles buyers face are foreign taxes and foreign buying restrictions, which we do not see changing. However, we do see demand picking up as borders reopen,” Druce said.