This article is from the Australian Property Journal archive
CHINA has retained its mantle as the largest source for approved residential real estate investment proposals in the June quarter, while it has become apparent that foreign home buyers in Australia have a “new and unexpected complaint”: affordability.
The latest data from the Foreign Investment Review Board (FIRB) showed the number and value of approved residential real estate investments from all countries fell in the June period to 1,199, down from 1,428 in prior quarter, with a total value of $1.4 billion – down 22% from $1.8 billion.
China led approved residential real estate investment proposals by value with $0.4 billion, followed by Hong Kong, Taiwan, Vietnam, India and Singapore, each with $0.1 billion.
China’s total volume was down one-third from the prior quarter’s $0.6 billion, and the number of Chinese residential real estate investments was down 23% to 383, from the prior quarter’s 500.
For FY24, Chinese investment totalled $2.6 billion, down from $3.4 billion in FY23.
“Foreign homebuyers in Australia now have a new and unexpected complaint: affordability,” said Daniel Ho, co-founder and group managing director of Juwai IQI, China’s largest portal for overseas real estate.
“They are starting to sound a lot like local buyers.
“Remember that foreign buyers pay much more to purchase and to hold property in Australia than local residents and citizens. They have extra taxes, fees, and duties that local buyers don’t have to worry about.
“Even the interest rates they pay on their mortgages are higher because they can’t borrow from the big four banks. Their mortgages can carry interest rates that are more than two percentage points higher than the rates a local buyer might pay on their mortgage.”
On a million-dollar loan, a typical foreign buyer would pay at least $1,300 per month more than a local buyer.
In the 10 years through to June 2021, the FIRB approved Chinese commercial or residential real estate investment worth $126.2 billion, and in the past three years it approved $8.4 billion of strictly residential investment.
Melbourne is still the top destination for mainland Chinese buyers, according to Juwai IQI, followed by Sydney, Perth, Brisbane, and Adelaide. The median property price of Chinese buyers in Australia is $730,000, and 98% of buyers say they are purchasing for their own use.
“So, the offshore investor that was so common in 2014 to 2018 really no longer exists,” Ho said.
“We expect the upcoming Chinese new year in January to be a big one for Chinese purchases of property here. There are still many families in China who have Australian residency and want to purchase or upgrade their home in Australia. That’s the kind of buyer to expect during the long holiday that Chinese have for the lunar new year.”
Peter Li, general manager of project marketing agency Plus Agency, with more than $200 million in annual sales, foreign buyers are hesitating because of the high costs for the FIRB application fee and of foreign buyer stamp duty.
“Once they own the property, they find themselves paying high interest rates to the private lenders who finance their purchases, and on top of that land tax. They have the wealth to purchase the property, but Chinese buyers in particular often need a mortgage because they sometimes can’t move money overseas quickly.
“Another reason foreign buying activity is dropping is that many buyers of foreign origin have gotten their Australian residency already. They are no longer FIRB buyers but purchase and live here like any other resident or citizen.
“The volume of Chinese people buying in AU is still high, but a lot of them are no longer FIRB buyers. Three years ago, one out of five mainland Chinese purchasers we worked with had to go through the FIRB process, but now it’s only around 8% of buyers.”
Commercial real estate investment down in FY24
The number of commercial investment proposals approved lifted quarter-on-quarter from 271 to 340, and a value rising from $26.4 billion to $58.7 billion.
The United States was the largest source for approved commercial investment proposals by value in the June quarter (at $21.9 billion), followed by Japan ($9.5 billion), Germany ($5.4 billion), France ($4.1 billion) and Singapore ($2.3 billion).
Services was the largest target sector for proposed investment with a total value of $27.3 billion, followed by commercial real estate with a total value of $12.7 billion across 123 proposals – up from $7.8 billion across 101 proposals in the March quarter.
The value of commercial real estate investment proposals for FY24 came in at $35.8 billion, falling from $50.2 billion in FY23 and $63.3 billion in FY22.
Agricultural holdings steady
Foreigners hold entitlements for 47.6 million hectares of Australian agricultural land, down two-tenths of a percent from 47.7 hectares a year earlier. Chinese interests account for 2.1% of all Australian agricultural land, followed by the United Kingdom (2%), Canada (0.8%), and the Netherlands and the USA (both at 0.6%).
That gives foreigners a 12.9% share of the total of 40,298 GL of Australian agricultural land. That total foreign share was a slight decrease from 14.1% two years earlier.
Over 87% of agricultural land with foreign ownership is used for livestock.
