China’s crackdown on foreign investments may make it harder for first home buyers to get into the market

A RETREAT of Chinese developers from Australia could make it even tougher for buyers to break into the pricey Melbourne and Sydney real estate markets. Realestate.com.au chief economist Nerida Conisbee said there would be less development because of the Chinese Government announcement that it will restrict foreign investments and property prices could continue to rise as a result.

“Both cities are really starting to see a slowdown in prices already and I think with less supply in the market it will mean prices will not stabilise as much as people are hoping,” she said.

“If the level of supply kept up, I do think a slowdown would have led to a possible reduction in prices — but this will continue to support price growth in Melbourne and Sydney.”

Ms Conisbee said the Sydney market would be worse affected as supply and demand was more balanced in Melbourne than in the New South Wales capital. “There’s not enough supply so this will just make it worse ... it’s not great news for buyers wanting to get into the market,” she said. Ms Conisbee said the percentage of Australian development sites sold to Chinese companies had already dropped from about one third last year to just 11 per cent year to date.

The overall value of development site sales had also had a “huge drop off” from $6.5 billion last year to $2.3 billion year to date, she said. The rules could make it even tougher for struggling first-home buyers, Ms Conisbee added: “It could get harder if you’re a first-home buyer and you’re looking to buy an apartment. Fewer apartments being built is not going to make it any cheaper for you, so this won’t help affordability.” Chinese international property website Juwai.com’s head of Australia Jane Lu said individual Chinese investors would not be affected by the restrictions. “The best way to visualise what Chinese investment (in Australia) might look like in the remainder of the year is to look at what we’ve seen so far,” she said. “According to current trends, Chinese investment in Australian property is down from 2016 and on track to be close to what we say in 2015. That was an earth-shattering, record-setting year in its time.

Foreign investors in Australia were slapped with increased taxes and charges following the release of the 2017 Budget. Those who leave their residential properties vacant for more than six months a year were hit with an annual charge equivalent to the property’s foreign investment application fee. The government also introduced reforms to prevent foreign residents from capital gains tax exemptions and imposed a 50 per cent cap of foreign ownership in new property developments. According to data compiled by Credit Suisse earlier this year, Chinese buyers accounted for 80 per cent of the properties in Australia bought by foreign investors. “When it is all done and dusted, this year is likely to be the second or third biggest year for Chinese investment in Australian real estate to-date,” Ms Conisbee said. Credit Suisse estimates the announcement could see future investments move forward at a slower pace “because of increased scrutiny”. China announced on Friday that it will restrict foreign investments in sports clubs, real estate and entertainment and other areas. The Chinese government had previously encouraged overseas spending sprees, but then warned late last year of “irrational” acquisitions amid fears that powerful conglomerates were racking up dangerous debt levels.

The Chinese government said on Friday it hopes to promote the “rational, orderly and healthy development of foreign investment while effectively guarding against risks”. “There are great opportunities for our nation’s companies to embark on foreign investment, but they also face numerous risks and challenges,” the document released by the State Council said.

“Foreign investments that do not conform to China’s efforts towards peaceful development, mutually beneficial co-operation and to macroeconomic regulation are subject to restriction.”

The only companies still permitted to make overseas investments are firms “supporting the real economy,” Friday’s document stated.

news.com.au/August 21, 2017

newsletter