Slowdown in Australia’s property market won’t dampen Chinese investor interest

Not only is the market correction happening in a fundamentally strong economy, but Chinese developers’ established presence in Australia and Chinese people’s favourable sentiment will ensure the appeal of Australian property endures

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Office workers walk past the General Post Office building during lunchtime in Sydney, Australia. Politically stable, economically resilient and highly transparent, Australia has long been one of the preferred markets for Chinese cross-border property investors. Photo: Reuters

Published: 6:00am, 9 Apr 2019Updated: 6:07am, 9 Apr 2019

Chinese real estate developers and investors have more than their fair share of problems at home. Whether it is a sharp slowdown in the economy, softening demand for new office space in coastal cities or tighter capital controls that have curbed overseas acquisitions, mainland property companies face significant challenges.

Yet, for those that have sought refuge in Australia’s property market, it has been the worst of both worlds of late. In the year to June 30, 2018, China was the leading recipient of government approvals for foreign investment in Australia's residential and commercial real estate markets, obtaining consent for A$12.6 billion (US$9 billion) of investment, or one quarter of the total value of real estate approvals, according to a report from Australia’s Foreign Investment Review Board published in February.

Australia’s once-booming housing market has come off the boil, with median house prices falling by nearly 5 per cent last year, led by declines in Sydney and Melbourne – which together account for almost 60 per cent of the value of the market – of nearly 9 per cent and 7 per cent respectively, according to a report published in January by property adviser Jones Lang LaSalle.

A confluence of domestic and external factors – a tightening of banks’ lending standards due to stricter macroprudential measures, an increase in housing supply, particularly in the apartment market, and a significant drop-off in demand from both foreign and domestic investors – has exposed vulnerabilities in Australia’s housing market and the broader economy. Not only is the banking sector’s exposure to residential property substantial, at over 50 per cent of total assets, household debt ratios are among the highest in advanced economies, the International Monetary Fund warned in February.

Newly built apartment blocks are seen in Epping, a suburb of Melbourne. A confluence of domestic and external factors, including an increase in housing supply, particularly in the apartment market, has exposed vulnerabilities in Australia’s housing market. Photo: Reuters

One of the most conspicuous signs that Australia’s housing market is undergoing a correction is the sharp fall in the value of development sites purchased by Chinese investors. According to a report published in February by property adviser Knight Frank, mainland developers and investors acquired A$1.3 billion worth of sites last year, a 35 per cent fall on the previous year.