Foreign investment in Australian property tanking

The rapid decline of Chinese property investment in Australian property has gathered pace in the past year.

For residential property, China far outstrips that of any other country but investment is drying up fast, with the same unwavering downwards momentum unfolding in the much larger commercial property sphere.

In late-2023, $700 million was invested by Chinese foreign buyers of Australian residential real estate, a figure that was already well down on the $1.1 billion three months before that.

The latest figures released this week by the Foreign Investment Review Board (FIRB) show that figure has now plunged to just $0.4 billion.

Mainland China was still the largest source for residential real estate investment by value ($0.4 billion), followed by Taiwan ($0.1 billion), Hong Kong ($0.1 billion), Vietnam ($0.1 billion), and Indonesia ($0.1 billion).

Foreign investment in Australian commercial property dwarfs that of the residential sector, but the decline around the world, especially in China, has also been significant in this sector.

The FIRB approved $24.1 billion of investment into commercial real estate, compared to 1,123 residential real estate investment proposals with a total value of just $1.3 billion.

China’s $1.6 billion worth of commercial investments 12 months ago placed it fourth among all countries. Today it has fallen outside the top 10, below the United Arab Emirates’ tenth placed $0.6 billion.

Chinese property investment in Australia is declining primarily due to a slowing Chinese economy, stricter capital controls within China limiting outbound investment, high Australian property prices, increased taxes and fees for foreign buyers, and a recent trend of Chinese investors seeking permanent residency in Australia, reducing their need to purchase property as non-residents.

The Albanese Government last week announced it will ban foreign investors from buying established homes for at least two years and crack down on foreign land banking.

Fiona Yang, Executive Partner of Plus Agency, said a late rush could be about to unfold.

“The ban will drive a surge in foreign buyers in early 2025, so you will have a significant increase in FIRB transactions as buyers try to catch the last train.

“They worry this is their last chance to buy.

“Now, it is true the letter of the law doesn’t ban purchasing of new homes, but many buyers only see the headline and, on top of that, many unscrupulous agents are using the ban as a selling point to urge buyers to move quickly.”

Education the lure for foreign real estate investors

Despite the figures, Juwai IQI Co-Founder and Group Managing Director Daniel Ho said buyers from China still love Australia and that the true number of Chinese buyers may be disguised.

“With the political uncertainly in the United States, Australia looks like a much friendlier country.

“One reason there are so many more Chinese buyers than, say, Vietnamese or Indonesian, is that China has become a much richer country than most other Asian nations over the last few decades.

“Even though this report covers FIRB buying, meaning the buyers don’t have the right to permanently live in Australia and nearly all of these transactions are for the buyer's own use; they are purchasing for their children who they expect to attend school in Australia, or for themselves in advance of obtaining permanent residency.”

He said China’s slower economy and cultural pressures are behind some of these transactions.

“Parents see their children struggling in hyper-competitive schools for too few university places, and then they see that the job market after they graduate with a degree won’t be great.

“High school students in China may spend up to 77 hours a week studying, including school hours and homework, and some parents would rather their children have a more Australian-style childhood.

“They want their children to also have friends, to do sports, to learn to swim.”

There was overall decline in the value of foreign investment in Australian commercial property in the past 12 months, driven by a huge fall in US investment from $31.3 billion to just $22.9 billion.

Among the top ten international sources of commercial property investment, the value fell from $44.2 billion to an estimated $36 billion (estimation due to Indonesia’s actual investment value being unavailable).

Another notable fall was France, from second ($4.7 billion) to ninth.

Singapore bucked the trend, rising markedly in value from $1.2 billion, and fifth overall, to second placed with almost four times as much investment.

Indonesian investors are increasingly showing interest in Australian commercial properties, particularly in major cities like Sydney and Melbourne, with Australia’s northern neighbour entering the top 10 in third place.