Has Australia had enough of Asian buyers?

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Asians love to buy into the lifestyle down under, but there are clouds on the horizon

Long a magnet for Asian investors, Australia’s cities offer fantastic lifestyle benefits

By Elisabeth Knowles

It’s easy to understand why investors are attracted to Australia. The cities are cosmopolitan, uncrowded, multicultural and predominantly coastal. It is also one of the most attractive countries for Asian migrants due to its temperate climate and the promise of an easy lifestyle transition.

Asian communities abound in Australia’s cities, prompting top American-Chinese comedienne Margaret Cho to note on a television current affairs show that Australia is “so Asian!” Chinatowns are established in each capital city, and increasingly in suburban centres, with abundant restaurants, Asian grocers, and late-night dumpling bars.

Then there’s the sense of community – clusters of Chinese migrants, for example, are drawn to affluent, leafy areas such as Chatswood in Sydney’s north and Box Hill in Melbourne’s eastern suburbs, where houses and land sizes are large and construction standards high.

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Even for those not thinking of making a move Down Under, a thriving rental market and high demand for luxury property means buying property in Australia is unlikely to be a misstep.

In Sydney and Melbourne, there’s an almost-guaranteed return on investment. Record low interest rates have seen more Australians investing in real estate – a growth of almost 10 percent in 2015. Sydney’s real estate boom has seen many owners become millionaires in recent years, and Melbourne isn’t far behind.

Over the past four years, house-price growth in Sydney has risen by about 57 percent and almost 40 per cent in Melbourne. Many pundits see the property boom as a bubble that must eventually burst – and soon.

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The Paris-based Organisation for Economic Co-operation and Development warned in June of a “dramatic and destabilising” end to Australia’s housing boom. The assertion was backed by a rise in the number of new apartments, suggesting possible oversupply, and instability following recent inconclusive Federal elections.

Charles Pittar, CEO of Juwai.com, the Chinese international property portal, has his own interpretation of the report, however.

“The OECD report actually predicts that output growth will strengthen towards three percent next year, economic growth will pick up and inflation will fall, he says. “The report also describes ‘receding risks from the housing boom’, but does not predict a ‘dramatic and destabilising end’. It merely says there is always a chance their analysis is incorrect and – in that case – there could be such an outcome. To call that a prediction is a mistake.”

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Asian investment is one of the largest contributing factors to Australia’s real estate boom, be it industrial and office space or high-end luxury residential stock.

“Australia is still the number two destination for Chinese investment in the world,” adds Pittar. “The fact that the Australian dollar is still relatively low against the Chinese renminbi, the high quality of life and the appeal of an Australian education all support demand.”

Most offshore investors generally buy either for investment or to house a child looking to study in Australia, although property acquisitions are increasingly being driven by lifestyle opportunities, according to Nerida Conisbee, chief economist for the REA Group, a digital advertising company that operates Australian property websites.

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“Investors are still looking for a rental return; however, it is likely they would also like to get capital growth,” she says. “There may be some people looking to buy holiday homes – we are seeing strong demand in places like Gold Coast from offshore buyers.”

Asian countries make up three of the top five foreign real estate investors in Australia, according to data released earlier this year by the Foreign Investment Review Board (FIRB). While mainland Chinese buyers topped the list of foreign investors in the Australian real estate market in 2014 with USD46 billion worth of approved investments, recent years have seen increased interest from Malaysian, Singaporean and Hong Kong property hunters. Over the same period, those markets combined spent more than AUD7 billion (USD5.4 billion) on property.

“Australia trades heavily off a reputation as a highly transparent, well-regulated real estate market underpinned by a sophisticated legal system and a stable economic environment,” according to Les Koltai, head of real estate for global law firm DLA Piper. “It’s perceived as an easy place to do business. What has also assisted in recent years is the introduction of the Significant Investor Visa in 2012, which gives high-net-worth individuals the ability to apply for an Australian visa and ultimately permanent residency on the basis of a minimum investment in Australia of five million dollars.”

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After a decades-long mining boom, the industry has slowed and Australia needs to stimulate its economy from alternative sources. Prime Minister Malcolm Turnbull addressed the issue during his Federal election campaign, by pushing for the embrace of newer industries such as technology and innovation. One of the quicker fixes is allowing foreign investment into previously government-owned assets, such as energy. Hong Kong-based China Light and Power own one of the largest energy retailers in the country, EnergyAustralia, for instance.

Real estate is yet another area primed for foreign investment. “The [Australian] government’s policy is to channel foreign investment into new dwellings as this creates additional jobs in the construction industry and helps support Australia’s economic growth,” says an FIRB spokesperson. “It can also increase government revenues, in the form of stamp duties and other taxes. Foreign investment applications are therefore generally considered in light of the overarching principle that the proposed investment should increase Australia’s housing stock – by creating at least one new additional dwelling.”

In August, the Victorian Government unveiled plans for a new residential suburb, Arden, on the northern edge of Melbourne’s inner city, to be developed over the next three decades on former Crown land. The low-rise, high-tech, sustainable suburb will have its own Metro station (a transport hub for the nearby CBD) and is expected to house 15,000 residents and create up to 34,000 jobs.

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Universities remain a huge drawcard for buyers looking to provide accommodation for their children and invest in a low-risk property portfolio. In Melbourne, the inner-city suburb of Carlton is near the University of Melbourne and RMIT; a third of the suburb’s residents are international students, predominantly Chinese, Malaysian and Singaporean.

Politics, however, is threatening the market. Upheavals in government, including the serial ousting of prime ministers, saw a shock result in the federal elections this year, installing a motley crew of senators with different points of view on foreign policy. Some of these senators have strongly criticised the country’s reliance on foreign, particularly Asian, investment.

Melbourne consistently ranks among the world’s most livable cities. Gordon Bell/Shutterstock
Melbourne CBD

 

“You go and ask a lot of people in Sydney, at Hurstville or some of the other suburbs (which have large populations from China and other Asian countries),” one senator, Pauline Henson, told the media in July. “They feel they have been swamped by Asians and, regardless of that now, a lot of Australians feel that Asians are buying up prime agricultural land, housing.”

But with Asian (particularly Chinese) private individuals seemingly minded to invest, a slowdown seems – on the face of it at least – to be some time off. “We see Chinese buying growing in the next few years to new highs,” says Pittar of Juwai.com. “They are still eager to diversify their investments and to open up opportunities for their children overseas. And Australia is still a well-regarded destination for investment, education and immigration.”

Where to buy

SYDNEY

PROS: World-famous urban beach lifestyle; diverse ethnicity; financial stability

CONS: Stamp duty on foreign buyers; high beachfront property prices; decreasing auction rates

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MELBOURNE

PROS: Dubbed world’s most liveable city six years in a row; fastgrowing prime property values

CONS: Lack of medium-density dwellings in the suburbs; rising living costs; expensive public transport fares

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Three things to consider before buying property in Australia

  • Know the rules: The Foreign Investment Review Board is a handy place to get the latest information on notification requirements and guidance. Go here.
  • Apply for approval before purchase: In the case of established residential dwellings, as a foreign investor you’ll need to apply for an established dwelling exemption certificate via the Australian Tax Office.
  • Be wary of unexpected fees and taxes: “Keep in mind there are additional taxes for offshore buyers, as well as potential difficulties in accessing finance,” says Nerida Conisbee, REA Group chief economist. The most recent is a 10 per cent capital-gains tax on the sale price of the home, payable to the ATO by foreign investors.

How education is driving Australia’s property market

Education is the leading service export in Australia, and its fourth biggest export after iron ore, coal and natural gas. Over a quarter, or 26.6 percent, of foreign students in Australia are from China. Just 11 percent are from India, a historically significant market for foreign students in Australia.

According to Charles Pittar, CEO of property portal Juwai.com, “Chinese consumers increasingly say education is their primary purpose for property investment in Australia – 59.5 percent of all enquiries in 2015, up from 35.3 percent of all enquiries in 2014.”

International student education supports more than 130,000 jobs in Australia and brought in over 19 billion dollars in the year ending March 2016. And the benefits go both ways – only the United States and United Kingdom have more institutions in the top 100 of the QS World University Rankings than Australia. Some of the best include Australian National University in Canberra (ranked at 26), the University of Melbourne (31), University of Sydney (38), University of Queensland (48), and University of New South Wales (49).

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