Chinese and other nations shunning Australian property

Foreign investment in Australian property has taken a major downturn, with the value and number of foreign residential real estate transactions taking a big hit in the most recent quarter measured.

The Foreign Investment Review Board (FIRB) on Friday (9 February) released data for the quarter to 30 September 2023 showing that the number of residential real estate investment proposals approved was 1,374 with a total value of $1.5 billion.

China was the largest source for approved residential real estate by number and value ($0.7 billion), followed by Hong Kong SAR ($0.1 billion), Vietnam ($0.1 billion), India ($0.1 billion), and Taiwan ($0.1 billion).

While China remains unrivalled as the top source of foreign investment, there has been a large fall from the previous quarter.

The $700 million invested in the September quarter is a shadow of the $1.1 billion three months earlier, while the number of transactions from China fell from 826 to 523.

The FIRB report only tracks purchasing by those who do not have residency.

Among the top 10 nations that are sources of residential investment, only India and Nepal recorded an uptick in the number of transactions over the previous quarter.

Juwai IQI Co-Founder and Group Managing Director Daniel Ho said he expected the downturn to be short-lived as China’s economy continued to emerge from a slower post-Covid recovery than has taken place elsewhere in the world.

“China is still the number one investor, but what we see with our clients is that fewer offshore Chinese and Hong Kong buyers are purchasing. 

“Instead of buying as non-residents, most are waiting until they have permanent residency in Australia.

“If you know you’re on the path to getting permanent residency, there is no reason to pay the extra costs that come with purchasing as a non-resident, including the extra stamp duties and the uncertainty of the FIRB process.

“Also, owning property as a foreign buyer, with land tax and vacancy tax, is more expensive than owning is after you have permanent residency, so a host of factors is dissuading Chinese buyers who are non-residents and encouraging them to buy once they have their residency in order.”

“Chinese and other Asian buyers will purchase more property in Melbourne this year than in 2023. Chinese buying will grow more quickly than purchasing by other Asian countries because it is still coming back from its relatively late opening from the pandemic.”

He told API Magazine that overall, purchasing will be driven by relatively strong economies and Australia’s attractiveness for investment and lifestyle, with Sydney retaining its status as the most preferred city.

The shelving of the so-called golden visa was also a factor in suppressing foreign investment in Australian residential property.

Foreign investment sources shifting

Peter Li, General Manager of project marketing enterprise Plus Agency, was less positive about Chinese interest in Australian property reversing its current trajectory.

“Chinese interest will decline by 2025 because the Chinese economy is weaker today, so prospective buyers have less money.

“The demand for property has dropped in general because of rising interest rates and Australia’s canning of the golden visa, which enabled some super-rich people to easily come to Australia, will also have an impact.

“On the other hand, we see increasing demand from Southeast Asia. Overall foreign buyer demand will remain similar, but the source countries will change.”

A large proportion of the Chinese buying community is targeting extremely expensive super prime property.

"We know there is going to be a decline in foreign buying because a lot of Chinese have migrated already so they are no longer FIRB buyers and they won’t show up in the report.

“Usually, the property they buy with FIRB approval is just a transition property for them to live in temporarily.

“Once they get their residency they will start to look for a big house in the suburbs for $10 or $20 million.

“The people who got FIRB approval in the last few years are now permanent residents. 

“The second reason is the fees are really high, so, you’re going to see fewer transactions.

“Anyone who isn’t highly motivated can be deterred by the application fee and the stamp duty.”

Similarly, the value of approved foreign commercial investment proposals has also declined, particularly from the biggest source, the United States.

Government to raise foreign buyer costs

The Federal Government this week officially introduced legislation to increase foreign investor fees in an effort to stop Australian homes sitting vacant and free up housing stock for residents.

Current fees for foreign investors start from $4,200 for property valued at under $75,000 to upwards of $100,000 for homes valued $5 million and over.

The government’s amendment would see these figures tripled if the home in question is an established dwelling.

The Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2024 include higher fees for the purchase of established homes and increased penalties for those that leave properties vacant. Application fees for foreign investment in Build to Rent projects, however, have been reduced.

The government is hoping these changes will redirect the foreign investment that still occurs in Australian property into new builds to help stimulate the struggling construction sector.

An announcement from the Treasury at the introduction of the bill described the fee hike as further encouragement for foreign nationals to buy new property instead of existing homes, and “help to ensure that those who do get approval follow the rules”.

“The higher fees for established dwellings will encourage foreign buyers to invest in new housing developments. This will help create additional housing stock, jobs in the construction industry and support economic growth,” said a media release jointly issued by Treasurer Jim Chalmers and Housing Minister Julie Collins.

“The increased vacancy fees will encourage foreign investors to make their unused properties available to renters,” it noted.

In total, mainland and Hong Kong Chinese buyers were approved to acquire $4 billion of Australian residential real estate in 2022-23.