Chinese buyers fleeing corruption and turmoil turn to Australian real estate

Chinese buyers are flocking back to Australian property, attracted at least in part by the country’s relative stability as two of its own real estate giants teeter on the brink of collapse.

The billionaire chairman and founder of Chinese property developer Evergrande, the world’s most indebted company, Hui Ka Yan, is being investigated and has been detained by police.

Evergrande is not the only real estate developer in deep trouble.

Country Garden reported a record $6.7 billion half-year loss. Analysts estimate it has sold one million homes that are yet to be completed.

In the face of such widespread turmoil, it is little surprise Chinese investors are looking beyond their own shores to more stable international property markets.

Chinese home buyers clocked up $3.4 billion in residential real estate purchases in the last financial year, 40 per cent more than the previous year, according to new data released by the Foreign Investment Review Board. Buyers from mainland China account for 57 per cent of all approved for in-home purchases, and that rises to 67 per cent when you include Hong Kong buyers.

Speaking to API Magazine, Juwai IQI Co-Founder and Group Managing Director, Daniel Ho, said Chinese investment in high-end real estate will climb at least 30 per cent in 2023 compared to 2022 .

“Chinese enquiries on Australian homes bounced back quickly in 2023 and if current trends persist through the rest of September, third-quarter enquiries will be 157 per cent higher than one year earlier.

“Chinese buyers are purchasing homes and spending more on those homes than a year ago.

“The available data isn’t complete, however, we can draw some conclusions from the data we do have.

“Just before the pandemic, Chinese investment was climbing by double digits.

“During the pandemic, it fell by 60 per cent but since China emerged from its zero-Covid policies in January, investment has rapidly begun to recover.” 

In 2019-2020, just before the pandemic, Chinese investment in Australian real estate jumped by about $1 billion, an increase of 17 per cent over the prior year.

In 2020-2021, it fell back again almost to the level of the prior year, with Chinese buyers approved to acquire residential real estate worth $2.4 billion in Australia.

As well more Chinese buyers, their taste in Australian property is also evolving.

A shift away from inner city apartments to bigger homes in areas not traditionally seen as having many Chinese residents is taking place.

Esther Yong, founder of AC Advertising Group, said Chinese buyers were becoming better educated about Australian property.

“They used to focus on CBD apartments, house and land packages, and houses in Chinese-concentrated areas like Box Hill in Melbourne and Hurstville in Sydney.

“Then good school zone houses started to trend over the last few years for obvious reasons.

“Lately though, Chinese buyers seems to be more adventurous and willing to consider buying in less popular, amongst Chinese, suburbs.

“They are more educated about the Australian market,” Ms Yong told API Magazine.

Garry Zhou, Director of real estate firm Sunny City, said his buyers were most active in south eastern suburbs of Melbourne.

“They are most seeking after independent houses, semi-detached houses and multiple townhouses on one site.”

“Chinese buyers are turning to Australia to escape the uncertainty of their own real estate markets.

“The risks in the property market in China are rising and rational investors in China are reallocating their money by turning to other countries, however, the high extra fees and duties for foreign buyers might subdue that demand.”

Mr Ho agreed the Chinese buyer of today is very different than the that of 2019, before Covid.

“Before the pandemic, offshore investment buyers accounted for a larger share of Chinese purchases, but no longer,” he said.

“Most Chinese buyers today purchase for their own use and intend to move to Australia.

“Many already live here as permanent residents or holders of two passports.

“That means Chinese buyers today look for larger apartments, townhouses, or single-family homes and are less likely to purchase a one-bedroom or small two-bedroom inner city apartment.”

Developers have various methods, including exploiting regulatory loopholes or bribing officials, to divert these funds into their own pockets.

- Garry Zhou, Director, Sunny City

He said the first wave of buyers this year consisted of students who needed urgently to move to Australia to complete their studies in person.

“Students have also been joined by Chinese families who lived in China during the three years of lockdowns, many of whom already had Australian permanent residency.

“They are determined to make up for lost time now that China has relaxed its lockdown.”

He said he expected buyer momentum to continue into 2024 and projected higher acquisition levels in 2023 and 2024, compared to 2022.

“We have about three years of pent-up transactions to work through.

“About one-third of Chinese buyers purchase in Victoria, about 30 per cent in New South Wales, and about 20 per cent each in Queensland and Western Australia.

“The top destinations have a magnetism for buyers from China because of their educational opportunities, commercial and employment opportunities, and buyers’ ties to friends and family who already live there.”

Hong Kong-based newspaper South China Morning Post reported that Chinese short-term migration to Australia is on track this year to overtake pre-Covid 2019, owing to improved economic relations, a glut of white-collar jobs and a boom in real estate.

Capital controls that been imposed by Chinese authorities are now being lifted, ensuring that capital once again flows freely into Australian property.

Turmoil and corruption in China

The woes infecting Evergrande and Country Garden in China are inconceivable in an Australian context, according to Mr Zhou, who said corruption and unwieldy loan processes had wrought havoc on the country’s real estate sector.

“Firstly, in China, after homebuyers sign contracts for the-off-plan properties, even before construction has started, they must secure mortgage loans from banks and begin to pay interest.

“The bank loans go into a government-monitored account and the developer then applies for disbursements to use the loaned funds for construction costs.

“This process is inconceivable in Australia - the period between signing the purchase agreement and settlement typically takes several years and sometimes even a decade or more, with a lot of uncertainty in between.

“Building and development costs must be borne by the developers in Australia to ensure purchasers are not placed under high risk, however, in China, homebuyers foot the bill for these costs, taking on the loan expenses and yet the loaned funds are put under the control of the developer.

“Secondly, although these loaned funds are theoretically subject to oversight, developers have various methods, including exploiting regulatory loopholes or bribing officials, to divert these funds into their own pockets and then use the money to purchase new land instead of paying construction costs. 

“The combination of these two factors provides ample opportunities for developers to engage in Ponzi schemes, hence, there are many unfinished construction projects and a lot of missing funds in China.

“Companies like Country Garden and Evergrande have been operating in this manner for decades.”