Sour relations between Beijing and Canberra dampen mainland Chinese investment in Australian property market

Investment in Australian property from both state-owned and private enterprises in China fell 29 per cent in 2020, and is on the decline again this year
Relations sank to a new low when Canberra criticised Beijing’s handling of the coronavirus pandemic, which was first detected in the central Chinese city of Wuhan

China-Australia relations

Cheryl Arcibal

Published: 5:30pm, 18 May 2021

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The worsening tensions between Canberra and Beijing have dampened the appetite of mainland Chinese for Australian property, with investments declining by 29 per cent in 2020, according to data from Real Capital Analytics (RCA).

Total investment in Australian property both from state-owned and private enterprises in China reached US$935.5 million in 2019, falling to US$664 million last year. As of the first quarter of this year, it was down to just US$22.7 million, according to RCA. The data tracked deals involving income-producing real estate such as offices, industrial and retail buildings, hotels, rental apartments and development sites for commercial and residential projects worth at least US$10 million.

“The tension in the international relations [between Canberra and Beijing] will affect foreign direct investments into Australia, including investments in its property market, where Chinese investors constitute one of the largest foreign investor groups in the country,” said Sing Tien Foo, director, Institute of Real Estate and Urban Studies at the National University of Singapore.

In 2018, mainland Chinese investment in Australian property reached US$2.5 billion, but relations started to fray that year when Australia banned Chinese tech giant Huawei Technologies from building its 5G network, the first Western country to do so. Since then, relations have deteriorated and are now perceived to be at their lowest point following Canberra’s criticisms of how Beijing handled the coronavirus pandemic, which was first detected in the central Chinese city of Wuhan.

Before the tensions, Australia was a clear investment destination favourite among Chinese developers, accounting for about a third of the residential development sites sold in 2018, according to property consultancy Knight Frank.

Zone Q, China Poly Group, Yuhu Group and Aqualand were just some of the mainland developers that had become active in the Australian property market, and had even diversified into office assets. Chinese developers had also on average purchased more than 25 per cent of the residential development sites that changed hands in the previous years.

About 11 per cent of all new apartments in Australia in 2018 were built by Chinese developers, with the share projected to rise to 22 per cent this year, according to the report released by Knight Frank in 2019.

Given the ongoing rift between China and Australia, however, the trend is unlikely to be sustained, according to other analysts. Last year, Canberra’s delayed response to the purchase of an office tower in Sydney worth A$80 million (US$62 million) led to the withdrawal of the offer from a private group of Chinese investors.

Chinese investment in Australia began facing deeper scrutiny following a string of high-profile acquisitions of trophy assets by tycoons. They included a 700,000-acre cattle station bought by billionaire Ma Xingfa for A$47 million. A mansion overlooking Sydney harbour was sold to Huang Jiaer for A$60 million.

Since 2016, Australia has limited foreign buyers to owning newly-built properties.

“Prior to the Covid-19 pandemic and the recent geopolitical spat between Beijing and Canberra, mainland Chinese had been steadily investing in the Australian property market,” said Jojo Romarx Salas, global research director at Leading Real Estate Companies of the World, which has a network of 550 property agencies in 70 countries. “The sharpened and more frequent criticisms between the two capitals, however, make one wonder about the mid-term to long-term impact on real estate investments.”

The rift is also likely to lead Chinese investors to other markets that are seen to be less hostile to the country’s interests.

“Because of the ever-rising geopolitical risks and worsening relations between Australia and China, investors from mainland China will seek alternative options and tend to go elsewhere for their real estate investment,” said Maggie Hu, assistant professor of real estate and finance at the Chinese University of Hong Kong.

This article appeared in the South China Morning Post print edition as: Chinese interest wanes as politics takes centre stage