Chinese buyers bought $2bn of residential sites

by Manuelita Contreras15 Feb 2018

Chinese investors and developers bought $2.02bn of residential development sites – or one-third of total site sales  – in 2017, according to Knight Frank’s latest report.

The share of sales went down from the 38% recorded in 2016 but tripled since 2013, said Knight Frank in its report Chinese Developers in Australia – Market Insight 2018.

Interest in the Australian property market has continued despite government efforts in both Australia and China to tighten credit conditions, said Knight Frank’s head of residential research in Australia, Michelle Ciesielski.

The federal budget removed capital gains tax exemptions for overseas buyers last year, and the NSW government doubled the stamp duty for foreign buyers to 8% and raised the annual land tax surcharge from 0.75% to 2%. Meanwhile, the Chinese government has been stemming the flow of capital out of China.

Ciesielski said this was relaxed somewhat in mid-2017, helping boost market confidence.

But some broker firms have still seen a decline in the number of loan enquiries from foreign investors, including Chinese buyers. 

Although the reduction did not really affect his company as foreign buyers comprised a small part of its business, Homeloanexperts.com.au managing director Otto Dargan said his firm has had an influx of real estate agents approaching them to work as mortgage brokers because their off-the-plan sales have dried up. 

“So there has been a big shift in the market,” he said. 

Dargan believes the flow of business from foreign Chinese buyers will remain subdued this year and that the focus will shift to other markets that have yet to introduce a foreign citizen stamp duty. 

He said the proportion of his company’s foreign Chinese clients likely peaked at 5% and now stands at less than 1%. 

The Knight Frank report says Victoria recorded a sale of 38.7% of residential sites to Chinese buyers in 2017 – the highest share of all states.
 
“This follows sustained growth in population, strong residential capital gains and a relatively low total vacancy. Many developers consider that Melbourne offers better relative value when compared to Sydney," said Ciesielski.

NSW and Queensland came next, with Chinese buyers comprising 35.6% and 7.4% of their total volumes, respectively.

As Chinese developers gain experience in higher-density projects, there has been diversification in their portfolios to include medium and lower-density sites, said Knight Frank’s head of Asian markets, Australia, Dominic Ong.

“These lower-density projects have also become more popular with local developers – especially in NSW with the draft Medium Density Design Guide being released, identifying the ‘missing middle’ to encourage more low-rise, medium-density housing to be built."

He said this type of project also tends to have fewer hurdles with the tighter lending restrictions, and lowers the delivery risk to the developer.

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