Why Chinese property buyers are here to stay

DESPITE the best efforts of the banks and regulators, the flood of Chinese money into Australian residential property doesn’t seem to be showing signs of slowing — yet.

Two charts released this week in a research note from ANZ tell the story. The first shows data from the Foreign Investment Review Board, breaking down foreign investment approvals by country — not surprisingly, Chinese nationals accounted for the vast bulk last year.

According to FIRB’s latest annual report, the value of approvals for foreign investment in Australian real estate increased 75 per cent last financial year to $61 billion, with Chinese accounting for around two-thirds of applications.

Source: ANZ Source: ANZSource:Supplied

The second chart explains why. It shows the median Australian apartment price in Australian dollars, compared with the median Australian apartment price in Chinese yuan.

Source: ANZ Source: ANZSource:Supplied

As apartment prices climb inexorably higher for Australian buyers, the lower Australian dollar means prices have actually fallen in real terms for Chinese buyers since around 2011.

“The lower Australian dollar has supported foreign investor demand for Australian housing,” ANZ’s economists wrote. “Tighter lending conditions may see this ease.”

“We continue to expect that demand for housing will ease from here, driven by tighter lending standards, especially for property developers and foreign buyers,” ANZ wrote.

“Easing demand is expected to see price growth slow from hereon. From a peak of 12.8 per cent year-on-year in September 2015 and 8.1 per cent currently, we expect national house prices to rise by 6.4 per cent and 1.7 per cent in 2016 and 2017 respectively.”

Importantly, though, UBS points out that the share of Chinese borrowing for house purchases is very low at around 5 per cent, suggesting the risk “may be somewhat overstated”. It comes as new data shows housing prices are still rising and auction clearance rates are sky high — but the real test of the market’s resilience is still to come.

Supply of homes on the market typically ramps up ahead of the Christmas/New Year break.

The latest weekly figures show 77.8 per cent of auctions in Australia’s mainland state capitals last week ended with a sale: the highest clearance rate since June 2015.That was driven by the two major markets, with Sydney and Melbourne both boasting clearance rates of around 80 per cent, according to the CoreLogic property market figures.

But despite the apparent surge in demand signalled by the higher clearance rates, prices across the five mainland state capitals rose just 0.1 per cent for the week.The average price was up by 5.9 per cent from a year earlier, the first time below six per cent for nearly three years, the figures showed. The bellwether market of Sydney led the pack with a 9.1 per cent gain over the past year, with Melbourne not far behind at 6.7 per cent.

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