Why Chinese investors keep buying Australian property: it's cheap
14 May 2017
It is said real estate is all about "position, position, position".
Perspective could equally be thrown into the equation as well, and from the perspective of China's rapidly growing millionaire class, Australian capital city properties are not only cheap, but high-yielding as well.
Detailed analysis from the big broking house Credit Suisse has found that despite the hurdles to Chinese investment in Australian property constantly being raised, it is still seen as good value.
PHOTO: Property price and yields: China vs Australia
Perhaps the starkest statistic from the perspective of value is the fact that the median price for a two-bedroom apartment in Shanghai is around $900,000, which is 25 per cent more than the median apartment price in Sydney.
Then there is the issue of rental yield.
In Shanghai, rental yields average around 1.5 per cent, half what a landlord of an equivalent property in Sydney would get.
"Yes, our property is expensive when we compare it to our own history, but it is cheap when compared to Chinese property," Credit Suisse strategist Hasan Tevfik noted.
China accounts for 80pc of foreign demand
Based on house-price-to-income ratios, Sydney is now the second most expensive city in the western world and Melbourne the sixth most expensive, according to Demographia's 2017 Housing Affordability survey.
In absolute terms, Sydney house prices have risen 106 per cent since 2009, with Melbourne not that far behind, up 89 per cent.
Mr Tevfik said with housing demand outstripping supply in Australia, the major component of the strong demand comes from abroad — and principally, China.
PHOTO: Breakdown of foreign property buyers in NSW
The Credit Suisse research pulls together new data from the state revenue offices of New South Wales and Victoria to get a picture of foreign demand for Australian housing.
The key findings include:
Foreigners are purchasing the equivalent of 25 per cent of new housing supply in NSW and 16 per cent in Victoria
China currently accounts for almost 80 per cent of all foreign demand
There has been a pick-up in both Sydney and Melbourne settlements around the end the year, despite the numerous impediments for foreign buyers
The average transaction size by a foreign buyer in New South Wales since June 2016 was $1.04 million, though there was considerable spread by nationality.
US buyers have the deepest pockets, paying on average $2.35 million, followed by Indonesians, while Chinese buyers pretty well paid the average price. Indians were way back in the pack, paying on average $420,000 for their patch in Sydney.
PHOTO: Foreign buyers' housing spending patterns
Currency controls and higher taxes having little impact
Mr Trevfik argued Chinese demand is likely to remain solid, despite increased costs and impediments, because of the impressive rate of wealth creation taking place.
If it looks like a housing bubble...
In one sense it doesn't really matter whether there is a housing bubble or not. Once buyers start believing there is, they have every incentive to wait before buying.
An earlier report published by the Swiss broking house estimated there are now 1.6 million US dollar millionaires in China, double the number there were in 2010, but way short of the 2.5 million expected by 2021.
Chinese restrictions on cross border capital flows imposed in November last year, and an individual quota on foreign exchange movements of $US50,000 a year, appear to be having little impact.
As well, local taxes for foreign purchases of property first introduced in 2015 keep going up, benefitting state treasuries without affecting sales.
However, once again, Australia is attractive on this score compared to much higher imposts levied in other popular Pacific rim destinations such as Vancouver, Singapore or Hong Kong. In Hong Kong, the Foreign Buyer Tax and Stamp Duty combined is 37 per cent.
If anything, sales have accelerated
Credit Suisse found in New South Wales there were $225 million of foreign settlements in October 2016, rising to more than $450 million in both November and December.
Similarly, in Victoria, the value of December settlements was 50 per cent higher than in November.
"So despite the capital controls put in place in China, and the local banks refusing to lend to purchasers from abroad, foreign buyers were still able to find the financing to complete their transactions," Mr Tevfik said.