This article is from the Australian Property Journal archive
A REAL estate crisis at home has seen Chinese buyers flock to Australia, according to new Foreign Investment Review Board (FIRB) data, and the true number of purchases from mainland China may be much bigger as more are waiting to obtain permanent residency before buying – sales not counted in the FIRB figures.
The data for the September quarter shows there were 1,374 approved residential investment proposals with a total value of $1.5 billion made in the period.
China was the largest source for approved residential real estate by number and value ($0.7 billion), followed by Hong Kong SAR ($0.1 billion), Vietnam ($0.1 billion), India ($0.1 billion), and Taiwan ($0.1 billion).
Co-founder and group manager director of international property portal Juwai IQI, Daniel Ho said that instead of buying as non-residents, most are waiting until they have permanent residency in Australia due to a host of factors. FIRB only tracks purchasing by those who do not have residency.
“If you know you’re on the path to getting permanent residency, there is no reason to pay the extra costs that come with purchasing as a non-resident. That means the extra stamp duties and the uncertainty of the FIRB process. Also, owning property as a foreign buyer, with land tax and vacancy tax, is more expensive than owning is after you have permanent residency.”
Ho said Chinese and other Asian buyers will purchase more property in Melbourne this year than in 2023.
“Chinese buying will grow more quickly than purchasing by other Asian countries because it is still coming back from its relatively late opening from the pandemic.
“Overall, purchasing will be driven by relatively strong economies and Australia’s attractiveness for investment and lifestyle.”
Peter Li, general manager of Plus Agency, a project marketing agency with more than $200 million in annual sales, usually, the property foreign purchaser buy with FIRB approval is just a transition property for them to live in temporarily.
“Once they get their residency they will start to look for a big house in the suburbs for $10 or $20 million.
“The people who got FIRB approval in the last few years are now permanent residents.”
He also noted the high fees would mean fewer transactions.
“Anyone who isn’t highly motivated can be deterred by the fees.”
Li said Chinese interest will decline in by 2025 because the Chinese economy is weaker today so they have less money.
“The demand for property has dropped in general because of rising interest rates.”
He added that Australia is “canning the golden visa”, which enabled some super-rich people to easily come to Australia, would also bring volumes down.
Increasing demand from south east Asia is expected.
“Overall buyer demand will remain similar, but the source countries will change,” Li said.
Meanwhile China’s real estate market is facing a crisis following the collapse of the world’s most indebted property developer. China’s property market woes have been central to the country’s stagnating economy, with countless apartment towers left empty or incomplete as developers struggle with finances and demand wanes.
The collapse will send one of the biggest shudders yet through the Chinese real estate sector. China’s biggest private developer, Country Garden was deemed to be in default on a dollar bond for the first time late last year and its own survival has come into question. It has nearly completed its sell-down of Australian assets, reportedly offloading its last remaining estate, the 330-hectare undeveloped portion of Wilton Greens in south western Sydney for around $240 million. It will continue developing stage one lots and retain stage two lots, which have yet to be approved. That followed the circa $250 million sale of Melbourne project Windermere.
Evergrande first defaulted in 2021, a year after Beijing introduced the “three red lines” measures that were designed to crimp developers’ borrowing and halt a growing property bubble. The company’s liabilities have since skyrocketed, to a reported range of A$455 billion and $498 billion. It lost A$118 billion over 2021 and 2022 and filed for bankruptcy in the United States last year.
Evergrande (US$ 300 billion liabilities) will go down in history as the largest global real estate company collapse, and the second biggest corporate collapse behind the Lehman Brothers (liabilities exceeding US$600 billion) in 2008.
In the meantime, the company’s subsidiary Evergrande Property Services in Hong Kong, announced it has launched legal action against the parent company, seeking to recover 11.4 billion yuan (US $1.59 billion) of pledge guarantees on deposit certificates.
Evergrande’s billionaire founder and chairman Hui Ya Kan was detained by Chinese police and put under surveillance last year, while there were allegations that he attempted to assets offshore while the company struggled to finish projects.
Foreign investment into commercial real estate volumes slowing
FIRB data shows there was $6.7 billion worth of approved investment proposals made into commercial real estate in the quarter, across 117 proposals. While the raw number was higher than the previous three months’ 99, it came in below the $10.1 billion value seen in the June quarter.
There was $50.2 billion of approved investment proposals over the entirety of 2022-23, and $66.6 billion over 2021-22.
The September quarter’s figures put commercial real estate as the third-largest source of approved foreign investment proposals, behind mineral exploration and development, which jumped up to $28.5 billion, and services at $9.4 billion.
Residential real estate was fifth, behind manufacturing, energy and gas ($3.2 billion).
