Politics, profits compete in flow of Chinese investment

The party is well and truly over when it comes to Chinese residential property buyers investing in Australia, reduced to a gathering for friends and family only. 

A prolonged slump in interest from China's real estate buyers has become increasingly evident since relations between the two countries have grown increasingly tense.

For the first time since Chairman Mao’s era as China’s leader, this week marked the first time Australia had no journalists based on the mainland. 

The flight of the last two scribes from Shanghai on Monday night will do nothing to warm relations between the two countries and was a highly visible reminder of the challenges that lie ahead in normalising the ties that would encourage Chinese nationals to invest in Australian property.

With a monthly audience of more than two million consumers from around the world, Chinese real estate firm Juwai.com revealed that property enquiries for Australia were increasing but only among a select in-the-know audience.

Georg Chmiel, Juwai.com executive chairman, told Australian Property Investor Magazine that most Chinese buyers in Australia already had a connection to the country. 

“The most active Chinese buyers are those who are already in Australia — you have families buying for their own use, second home buyers, students, and corporations purchasing employee housing or for investment purposes,” Mr Chmiel said.

“There are still a small number of offshore buyers in the market, but in almost every case these investors already have a connection to Australia and intend to live here again in the future.”

Chinese demand for Australian property in the second quarter of 2020 was 40 per cent higher than in the stagnant COVID-plagued first quarter. 

“After two quarters of lower demand, including a 14 per cent drop in the first quarter, Chinese demand as measured by real estate buyer enquiries has begun to recover," Mr Chmiel said.

Monika Tu is the Director of the Sydney-based luxury property agency for wealthy Chinese buyers, Black Diamondz. She said local Chinese were still active in the market but COVID-19 had obviously dried up international interest.

“Australia and New Zealand are few of the western countries that did an amazing job during COVID-19 and the world has seen it, so if people are looking for a better education or immigrate, we are ideally one of the few choices available,” Ms Tu said.

Politics and profits

In addition to the pandemic, the fact that buyers without ties to Australia were almost absent owed more to bilateral relations than investment returns.

According to Knight Frank’s Global House Price Index, for the second quarter of 2020 Australian house prices have grown 6.1 per cent since June last year.

A year ago, Australia ranked 56th, or last, on their index but has now risen to 19th as other countries wilt under a poor pandemic response. 

Australian house price growth is 1.4 per cent higher than the average annual price changes of 4.7 per cent across the other 56 countries in the index

Competing for the attention of Chinese investors are countries like the US and Canada, which were only ranked 27th and 30th respectively. Both countries underperformed Australia’s market and have also had their share of recent issues with China.

Further evidence of the politics over profit theory lies in the fact that Hong Kong, a huge magnet for mainland Chinese property investment, ranked last on the list. House price growth fell 2.8 per cent as residents looked to migrate to other countries.

“In the global context, Australia is still well-positioned,” Mr Chmiel said.

“The United States is turning away large numbers of Chinese students, and Australia competes with Canada and the UK as a top-three alternative study destination for these young people. 

“I won’t make a prediction, but there are good reasons to believe that transactions will further grow when travel is again possible on a large scale.”

Trading places

Conversely, as eastern states struggle with COVID-19 outbreaks and border closures, Chinese demand for iron ore is buoying the economy and property markets of the resource-rich west.

Housing Industry Association new home sales data showed builders in WA were enjoying a bounce.

So as Chinese property buyers dry up, Chinese money continues to impact Australian property. 

With iron ore trading for more than $100 a ton and gold near a record, miners in Western Australia are set to ramp up investment 

Chris Rodwell, chief executive officer at the state’s Chamber of Commerce and Industry was quoted by Bloomberg as saying: “Western Australia has been able to continue safely operating our resources sector throughout the pandemic, with sustained demand from China and higher commodity prices putting our exports on course for continued growth.” 

With Victoria in lockdown, Sydney property prices stalling or falling and Perth and the Pilbara region now in positive territory, Australian policymakers may soon be contending with the type of two-speed economy last seen more than a decade ago.

Millennial money

China has about 400 million millennials (born between 1981 and 1996), one of the largest emerging consumer groups in China. Their growing influence is driving new trends in real estate markets across the region.

Most high-net-worth buyers have been educated overseas and tend to buy their second home abroad — the UK, US, Australia — where they used to study.

But other Asian countries are becoming more appealing due to a lack of foreign investment regulatory obstacles.  

Juwai.com cited a surge in enquiries from young Chinese professionals. 

“Our data showed that Thailand was the most popular destination for young Chinese buyers searching through our website. 

“Buyers from mainland China and Hong Kong bought about 15,000 new Bangkok apartments, half of all purchases by foreigners.”

“And countries like Thailand, Indonesia, Malaysia, Vietnam and the Philippines do not  place too many restrictions on foreign buyers, unlike New Zealand, Canada and Australia,” Juwai reported.

It was a sentiment echoed by Black Diamondz’ Ms Tu.

“I expect property investment by Chinese to return to what it was when COVID is finally under control, absolutely, and probably even better, but Australia will need to open up its market to foreign investors so it helps its own economy recover,” Ms Tu said.