Fresh FIRB data has revealed that tighter controls in China and the introduction of property fees and restrictions in Australia have seen a significant reduction in Chinese property investment.
In FY17, a total of 13,198 residential real estate applications were approved for proposed investment worth $25.2 billion, down from $72 billion in FY16, according to the Foreign Investment Review Board (FIRB). However, approvals are indicative of potential rather than actual investment.
“A significant factor contributing to the reduction applications for the reporting period was the introduction of application fees from 1 December 2015,” the review board said.
“The introduction of fees resulted in investors only applying for properties they intend to purchase. Other factors which may explain the decrease include Chinese capital controls and the introduction of state-based taxes on foreign investors.”
In the 2017–18 Budget, the Turnbull government announced stronger rules for foreign investors who own Australian housing, which took effect on budget night, 9 May 2017.
The housing measures form part of a package of measures designed to increase housing supply and affordability for Australians.
To discourage foreign owners of residential properties from leaving these properties vacant, an annual vacancy charge will be payable if the property is not occupied or available to rent for at least six months in a 12-month period.
The government has also looked to ensure that dwellings in new developments in Australia are kept available for Australians by introducing a 50 per cent cap on pre-approvals of foreign ownership in new developments.
FIRB figures show Chinese investors were again the largest source of foreign investment approvals by both value ($38.9 billion) and number (9,714) in FY17.
Carrie Law, CEO and director of Juwai.com, the Chinese international real estate website, said that the market saw a dramatic shift during the 12 months to 30 June 2017.
“The report covers the second half of calendar year 2016 and the first half of 2017. These half years were like night and day in terms of Chinese investment. In the second half of 2016, Chinese investors were investing in Australian real estate at an almost irrational pace,” Ms Law said.
“It was like money falling from heaven for vendors and developers. In early 2017, capital controls, financing restrictions and foreign buyer taxes reduced Chinese investment to more reasonable levels.”
Juwai.com has seen a period of more sustainable growth since November 2017. Chinese buying enquiries for Australian property in March were 5.7 per cent higher than the month before, and in April they were 22.3 per cent higher, Ms Law said.
“China’s capital controls have worked. Today, China’s foreign reserves are up, the yuan is stronger, the flow of money out of the country has been reduced, and fears of a devaluation have virtually disappeared. But they have succeeded without having to make it impossible for ordinary Chinese families to buy property overseas.
“Now, the environment is changing. Rather than threatening further capital controls, the government is hinting it may unwind them. Buyers are beginning to anticipate a time, perhaps this year, when investing overseas again becomes easier.”
Ms Law pointed to an FT Confidential Research report that suggests a majority of Chinese households intend to increase their offshore investments in the coming two years, with real estate the asset class most favoured by outbound investors.
“Unfortunately, this year’s FIRB data is not directly comparable to that of prior years, due to the change in regulations and buyer behaviour. The new data probably gives a closer indication of actual investment levels because it includes fewer cases of investors who are just acquiring one property seeking multiple approvals,” the CEO said.
“The big declines are partly due to lower demand, and mostly due to the changed application fees. It’s great news for the bureaucrats at Treasury, as they now have to process fewer applications for a given dollar of investment.”
From The Adviser