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Categorized | Property

Sydney faces wall of Chinese money


Posted on September 29, 2015

an artist’s impression of the Barangaroo development in Sydney©Lend Lease

Harbour views: an artist’s impression of the Barangaroo development in Sydney

It took just three and half hours to sell the 159 waterfront apartments at the glitzy Barangaroo development on the Sydney harbour front, with almost a third of them snapped up by overseas investors.

Andrew Wilson, managing director of Lend Lease, Barangaroo South, says: “We received global enquiries from a range of buyers including professionals and executives, expatriates looking to return home, investors and homeowners looking to downsize for a more convenient lifestyle.”

    The off-plan sale in October 2013 was the first stage of a A$6bn retail, office and residential development. Lend Lease is preparing for the launch of a further 750 apartments, which will provide views of Sydney’s iconic opera house and harbour bridge.

    Interest among foreign buyers remains strong, the company reports.

    The value of foreign investment in Australia’s residential property almost doubled to A$34bn in 2013-14, the latest year for which data has been published. And, for the first time, China became the largest source of foreign investment — leapfrogging the US — following a surge in government approvals for purchases in the property sector.

    “There is a lot of appetite in China for Australian property, particularly in Sydney and Melbourne,” says Esther Yong, director of ACproperty.com.au, an Australian Chinese language property portal that organises seminars for investors in cities across China.

    She says that a downturn in the Chinese property market, a desire by investors to move their money out of China to diversify their investments, and growth in the number of Chinese either moving themselves or sending their children to school in Sydney and Melbourne have stoked the enthusiasm.

    “With an uncertain environment in China, many feel it is safer to get their money out of the country,” Ms Yong adds. “We also see many buyers for property near good schools and universities.”

    The wave of Chinese money flooding into Sydney and Melbourne in recent years has sparked a debate over the impact on the local housing market. Some say it is forcing prices up and preventing first-time buyers from gaining a foothold on the ladder. Others say it is driving a surge in building, which is lifting an otherwise faltering economy.

    The data suggest it is local investors who are pushing up prices the most

    – Saul Eslake

    House prices in Australia’s two biggest cities, Sydney and Melbourne, jumped by 18.4 per cent and 11.5 per cent respectively in the 12 months to the end of July. In Sydney over the past year more than a third of homes sold for more than A$1m, according to CoreLogic RP Data, a research group.

    “In Sydney and Melbourne, foreign buyers probably are pushing up prices somewhat, but they also appear to be adding to the supply of apartments,” says Saul Eslake, an independent economist. “The data overall suggest it is local investors pushing up prices the most.”

    Investors account for half of home loans issued in Australia, prompting regulators to warn about the dangers of a housing bubble and to force banks to hold more capital against their mortgage book. Australian Bureau of Statistics data show that the percentage of property purchases by first-time buyers fell to 13.7 per cent in February, down from 18.5 per cent in mid-2012 and a high of 30 per cent in 2009.

    Under existing rules, foreign purchasers can buy new properties but need regulatory approval to buy established properties. But until recently there was little scrutiny or enforcement of these laws, enabling some to buy existing homes.

    But that is changing as the government responds to the concerns of first-time buyers. In August, Joe Hockey, Australia’s then treasurer, unveiled regulations promoting greater oversight of foreign buyers, a fee system to pay for increased checks on overseas buyers, and criminal penalties of up to A$135,000 for individual lawbreakers.

    Australian authorities have already ordered several foreign owners — including a Chinese billionaire who bought a A$39m waterfront Sydney home — to divest themselves of properties they were alleged to have bought illegally.

    “Foreign investors must obey the rules,” says Mr Hockey, who has given any foreign buyers who may have broken rules until the end of November to come forward or face possible criminal sanctions.

    Michael Zhu, a real estate agent with House 18, which sells property to high-end Chinese buyers, says the new rules may scare off investors: “There are plenty of markets in the US or Europe that will welcome Chinese money.”

    Mr Zhu says stock market jitters in China may also slow investment, but not everyone agrees. Credit Suisse predicts A$60bn of Chinese investment in Australian housing up to 2020. It says the new rules on foreign buying will only hit demand marginally and notes the recent devaluation of China’s currency could lead to a short-term spike in demand.

    “Expectation of further renminbi weakness could bring forward demand for Aussie housing, as investors rush to get their currency out of the country before it is devalued further,” Credit Suisse reported on 12 August.