Chinese investors positive on Australian real estate despite tougher laws: Investorist study
Australia remains the first choice for Chinese property investors, who are undeterred by regulatory changes or global events when it comes to buying property overseas and the trend is likely to continue in 2017, says a recent report.
Chinese investors were driven by their motivation for diversifying wealth into assets outside of China, as also favourable conditions in gateway cities around the world, according to the survey by off-the-plan property marketplace Investorist.
The China 2017 International Property Outlook, which recorded the findings of interviews from 120 property agents in mainland China, found a majority of agents (88%) predicting sales volume of overseas properties to increase or remain unchanged in 2017.
Investor interest was undiminished throughout 2016 and the first quarter of 2017, it said.
Earlier this year, data from the Foreign Investment Review Board showed Chinese investors dominated the list of foreign investment approvals for the financial year 2015-2016, with much of it in residential real estate.
Of the total $47.3 billion pledged by Chinese investors in Australia, real estate accounted for more than $31.9 billion, FIRB data showed.
Investorist founder and CEO Jon Ellis summed up the sentiment, saying Chinese outbound property investment “has been an unstoppable juggernaut to date”.
“It has survived domestic currency controls imposed by the Chinese government and a range of shocks in international buying markets, from Brexit through to a nationalistic Trump administration and a raft of taxation and banking restrictions in Australia,” added Ellis.
The survey included findings from interviews of 120 agencies in mainland China, and compared them with research from other leading global research houses.
While 70% of the agents surveyed predict an increase in demand, 18% expected demand to remain the same, while only 12% said it would fall.
The pricing ‘Sweet Spot’ in Australia for Chinese investors is $400,000 - $800,000, said the survey, with apartments the top choice (64%), followed by single homes/house and land packages (55%), townhouses (38%) and land (33%).
Melbourne, Sydney and Brisbane accounted for around 90% of all off the plan purchases, with the Gold Coast, Adelaide and Perth way behind.
In terms of yields, 5-7% including capital growth are the most attractive (50% of respondents), although not important to all.
The top three selection criteria for Chinese investors were budget (64%), followed by location (63%), then investment return rate (58%).
Some are motivated by buying in a school/university zone, migration, a second home or investment as a currency hedge. Children’s education was found to be the top incentive for overseas investment (76%), followed by migration purposes (69%) and asset safety and capital gain (68%).
The survey findings come amid major changes to the property landscape over the past 12 months in each of China’s key buy markets.
Though Australia currently holds #1 position for Chinese investors (69% of respondents, USA (59%) is catching up fast and is expected to overtake Australia in 2017.
In Australia, a raft of increased taxes and duties and tighter lending by banks to investors dampened demand by up to 30% in the latter half of 2016 and early 2017, although demand is again on the rise.
Interestingly, given the tight regulatory environment, 82% of Chinese investors have enough funds to settle property purchases, and potentially don’t require loans. Loans are sought for financial leverage, currency restrictions and other reasons, it said.
In the US, there was much speculation in the lead up to the Presidential election in November 2016 about the implications for domestic property prices and foreign investment.
“The prevailing view in China since President Trump has taken office is that as a very successful property developer and businessman, he will ensure the US continues to be an excellent market to both invest in and develop real estate,” says the report.
In the UK, the Brexit result in June 2016 and the immediate devaluation of the pound (31-year low, with more than 13% drop in value) presented an immediate opportunity for Chinese investors. A-grade property in London Zones 1–2 previously considered unaffordable, looked more attractive and offered greater yields as a result of the pound’s decline.
The survey summed up that the overall sentiment from Chinese agents was positive, implying demand would continue from investors in the next 12 months.
