Chinese investment in Australian real estate of all kinds has halved to $15.2 billion as internal controls and new taxes crimp demand, according to the latest Foreign Investment Review Board figures.
There are several factors affecting Chinese foreign investment including tighter Chinese capital controls however by far the greatest inhibitor to Chinese purchases in Australia is the tightening of Australian bank lending guidelines and increased local taxes.
While Aussie investors and first home buyers maybe de-facto beneficiaries of this 50% drop in Chinese investment it’s Australian residential property developers who are undoubtedly the hardest hit.
We are advised some developers in Brisbane are reporting up to 30% of apartment presales to Chinese investors are falling over when settlement rolls around; inflicting massive paper losses and often triggering lender covenants, which if not rectified; usually require the developer to make an immediate reduction in its loan facility.
Facing reduced demand, increased supply and cancelled settlements this tsunami of negative impediments can often lead to the developers demise and the bank taking possession and ultimately staging a mortgagee auction to try and mitigate their positions.
Meriton’s Harry Triguboff, warned earlier this year that he was grappling with Chinese investors who couldn’t settle on pre-sold apartments.
UBS’s latest survey of mainland Chinese investors confirms the deteriorating Chinese interest in Australia residential property/
Many Chinese investors have turned their investment interests to South-East Asia, in particular Thailand and Vietnam.
“For Australia, foreign buying activity peaked in 2016, moderating further into 2018, suggesting foreign buyers are unlikely to step-up and provide and offset to lower domestic demand as credit conditions tighten,” the UBS Evidence Lab: Chinese buying abroad report says.
Commercial property investment approvals also suffered, falling to $43.7 billion, down from $49.7 Billion in 2015-16.
Have we reached the bottom of the market influence of foreign buyers in Australia? I suspect this is just the Tip of the Iceberg and many property developers will again hit the wall in just another example of the highs and lows of standard economic cycles.
By Richard Aulsebrook & Nick Lenaghan & Su-Lin Tan