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Foreign investment from China in Australian real estate has been quietly on the decline for several years. It peaked in 2015-16 at $31.9 billion and dropped significantly to $6.1 billion in 2018-19, writes David Hancock.
Various factors have contributed to the decline, including Chinese restrictions on money leaving the country, smaller Chinese student numbers, diplomatic tensions and a stronger Australian dollar. The Australian government tightened foreign investment regulations and increased fees and taxes, and banks tightened lending standards for foreign investors.
So, for the sections of the Australian property market that have become reliant on Chinese investment, will a continued decline in Chinese investment lead to falling property prices?
Foreign investment from other sources set to grow
The Australian property market is less propped up by Chinese investors than many assume. The declines year-on-year in Chinese investment have had a negligible impact on the property market.
What we’ve seen is that foreign investment from other countries has begun to plug the gap. Between 2017-18 and 2018-19, Hong Kong real estate investment into Australia more than tripled to $9.3 billion and there were steep increases in investment by Singapore and Japan to $9.8 billion and $3.8 billion, respectively.
It’s clear there are plenty of other foreign investors who are just as interested in Australian property as the Chinese have been historically.
Investors and migrants to flock to Australia
Australia is increasingly becoming a highly desirable place in which to live and invest. With more favourable forecasts for the economy and greater political stability relative to other parts of the world, plus an excellent track record when it comes to suppressing COVID-19, Australia will become a haven for investors and migrants seeking stability and safety.
We can expect to see interest from migrants, foreign investors and returning expats from all over the globe including Hong Kong (where many people will be seeking to flee the unrest there), the US, UK and South Africa. This will go a long way to replacing any lost Chinese migrants or investors.
Will Chinese foreign investment continue to fall?
As a result of the COVID-19 pandemic, Chinese student numbers will fall significantly in 2020 and 2021. Stable Australian property prices combined with a stronger Australian dollar mean that Australian property is yet to become more affordable for Chinese investors.
Restrictions on moving money out of the country are unlikely to ease amid diplomatic and economic pressures. This indicates that we are likely to see continued falls in Chinese foreign investment.
What will this mean for the Australian property market?
Continued foreign investment and migration from a variety of countries, combined with government intervention and low supply, will likely prevent any long-term property price falls.
Even if the property market experiences a structural change in regard to foreign investment away from China, this is unlikely to cause any significant impacts in the Australian property markets that are already underpinned by strong demand from local owner-occupiers.
Property markets with a high portion of investors, such as highly developed apartment markets, are far more likely to be impacted by a fall in Chinese investment.
By David Hancock, managing director, Binnari Property