More demand for Australian housing as China eases capital controls

Australians worried about overseas demand for housing pushing up prices in Sydney and Melbourne better brace for even more foreign inflows, investment experts say.

They say reforms in China aimed at freeing up the flow of money in and out of the country will result in greater interest in Australian assets, including property.

“Australians might think they’ve seen a lot of Chinese investment in the Sydney and Melbourne property market,

but we ain’t seen nothing yet,” Colonial First State Global Asset Management chief economist Stephen Halmarick said.

He told a panel hosted by the Australian Institute of Superannuation Trustees in Sydney that the liberalisation of China’s equity, bond and currency markets would inflate asset prices across the world.

His comments coincided with the latest National Australia Bank residential property survey, which found that foreign buyers accounted for 16.1 per cent of all new apartment sales and 11.5 per cent of the nation’s house sales in the second quarter.

Victoria led the way as overseas residents snapped up 28.3 per cent of the apartments sold in the three months to the end of June and 16.7 per cent of the houses.

Despite tougher restrictions on foreign investors wanting to buy in established property markets, property professionals told NAB that these buyers accounted for 11.4 per cent of all apartments in this segment and 9.4 per cent of all house sales.

Again, Victoria led the the way. Overseas buyers accounted for a market share of 17.5 per cent in apartments and 16.1 per cent for houses.

Although NAB offers no breakdown of the provenance of the buyers, the Chinese make up a large proportion of the total, particularly when it comes to new and off-the-plan properties.

Nationally, 51 per cent of foreign purchases were apartments, 31 per cent were houses and 18 per cent were various properties and land earmarked for redevelopment, NAB found.

About 78 per cent of foreign buyers bought apartments valued at less than $1 million in the quarter, with 41 per cent buying apartments valued below $500,000 and 37 per cent between $500,000 and $1 million.

Just over 16 per cent of all apartment sales were worth between $1 million and $2 million and the balance of sales were above $2 million.

In NSW, almost one in four sales of all apartments to foreign buyers was valued at between $1 million and $2 million and almost 12 per cent over $2 million.

In recent weeks there has been a focus on the challenges facing China as it opens up its financial markets to foreign investors, and what the associated volatility means for other economies like Australia.

“But what will really matter for the world is how China opens up to allow its people to send money offshore,” Mr Halmarick said.

Aberdeen Asset Management head of fixed income Nick Bishop agreed that outflows of Chinese money were likely to have a greater impact on global financial markets than the recent rise in offshore capital into China.

“China is a nation with a huge balance of household savings because there has been no social safety net,” he said.

“Don’t discount the ability of Chinese money to flow offshore and push up global asset prices, even if the economy slows down more than expected.”

SMH / August 21, 2015