The Impact of Chinese Investors on Australian Property Prices.

In recent years, Chinese investment in Australian Property has been an unstoppable power. “Despite both internal and foreign market shocks, investment still grew in 2016, although at a slower rate than past years. Chinese investors have a strong desire to diversify their assets and as such they will always try to find new ways to achieve their goals. Thus, leading to the diversifying of wealth into assets outside of China”.

This was the key message at an event I recently attended hosted by Investorist, a platform that connects Australian Developers and Real Estate Agents with global property channels in order to find buyers for their off-the-plan sales.

Investorist presented their “The China 2017 International Property Outlook Report” in early August. It was based on the result of a comprehensive survey of 120 real estate agencies across China, who will collectively sell over 10,000 foreign properties in 2017, worth more than $5.27b.

Market commentary on Australian property has regularly referenced investment demand from China as a major driver of rising property values in the Eastern States.  Currently there is concern and uncertainty about the sustainability of Chinese investment demand and their ability to settle off-the-plan purchases. The data compiled by Investorist helped shed some light on the true state of affairs.

According to Investorist, when it comes to outbound property investment from China, the biggest problem can be currency controls. Especially with the current controls set to tighten even further. This is happenening at the same time political and taxation changes are taking place in key buying destinations. This has led Jon Ellis (CEO of Investorist) to question if the ‘Chinese Global Property Dragon’ will retreat in the next year. Or conversely, will the rapidly growing middle and upper classes in China keep it alive, as their obsession with foreign property is rising. According to the research though, the general attitude from Chinese agents was still very positive about buying opportunities for the next year.

Property is now a Global Commodity

Chinese investors, driven by Chinese economic and policy factors showed strong interest in foreign property throughout 2016 and the first quarter of 2017. They were especially attracted by favorable conditions in gateway cities, such as Melbourne, around the world.

According to the Economist Intelligence Unit, Australia is currently the top property investment destination for Chinese investors. This is despite having experienced a decrease in demand of around 30% in late 2016.  The impact of increased taxes on foreign investors, alongside increased borrowing restrictions is likely to impact further with Australia likely to lose top billing with Chinese Investors to the USA in the near future.

Demand Drivers: Diversification, Migration and Education

From the Investorist survey the major factors driving property investment are:

• A desire to diversify wealth into different assets,
• Protecting generational wealth by investing in ‘safe havens’ outside China, and
• Increasing migration desire and seeking superior educational opportunities for children.

Children’s education’ was cited as the top reason driving demand, just in front of migration, asset safety and capital gain. Much further down the list were lifestyle and other factors.

Educational opportunities for their children are a significant factor for Chinese investors. Top cities for investment have a strong reputation for quality education. Melbourne, the number one destination for Chinese investment in Australia is a good example, boasting six universities in the nation’s top 20.

Edward Chiu (Managing Director of MCD Visa) said “for the high net worth Chinese, property investment is at the top of the overseas investment list.” The main reasons for this being:

• Diversifying their investment portfolio,
• Investing in an asset class with a lower risk than other financial investments,
• Owning a second home, through investing in a property overseas.

Moreover, most Chinese agents surveyed choose to buy for their clients in more than one country with more sophisticated analysis than before.  The main drivers when it comes to investing overseas are shown here:

To generate sufficient returns, Chinese investors will further adapt their strategies and be prepared to invest heavily overseas.  Australia has long been their focus but as the Chinese middle class matures they are diversifying and exploring new markets.

The impact on Australian property Prices?

While the portion of total Chinese investment is diversifying away from Australia, the volume of all Chinese overseas property investment continues to rise.  This is likely to see the level of demand continue for some time.  Keep in mind that overseas investors are limited to new, off-the-plan properties, existing housing sales do receive a flow on effect but are more likely impacted by the record low interest rates and steady population growth.