When mainland Chinese resident Susan bought an off-plan flat in Melbourne’s new high-end West Side Place development in 2017, the Nanjing-based property investor’s plan was to rent it out upon its completion next year.
She shared the strong Chinese appetite for property – particularly flats in Australia – that sent the sector in Sydney and Melbourne soaring during a five-year boom between 2013 and 2017, when home prices rose as much as 70 per cent.
But despite her desire to own more flats, Susan, who declined to give her full name, said that West Side Place unit would be her last property purchase in Australia for a while. And she is not alone in her reluctance to further invest in the property market down under.
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The number of Chinese residents investing in Australian housing has fallen steadily since unfavourable actions were taken by the government against foreign buyers. In 2015, the state of Victoria was the first to introduce a surcharge on foreign purchases, and other states followed suit with fees as high as 8 per cent. A land-tax surcharge of up to 2 per cent for foreign buyers was also levied by individual states.
The taxes can really add up on pricey flats. For example, it is not unusual for an 80-square-metre (861 sq ft) two-bedroom unit in a top location in Sydney to sell for A$1 million (US$713,000) or more.
The pandemic-induced economic recession, a sharp decline in tourists and students to rent flats, and souring relations between Beijing and Canberra have made Chinese investors much more pessimistic about buying housing units in Australia. During the boom, the opposite was true – individual investors motivated by rising capital returns were known to own up to 10 units or entire floors of apartment complexes. Some even purchased flats sight-unseen at local property exhibitions held in mainland cities.
“It’s all about the bottom line. I bought my unit back then to realise a good return. So, if the rent is not good, which is the case at the moment, there is no reason to buy,” Susan said. “There are very few [Chinese] people going to Australia now, including students, due to border closures and political friction. So, tenants are scarce.”
Jack, a native of Shandong province who owns a unit in the affluent inner-city Chatswood neighbourhood of Sydney, said that while foreign surcharges were once the biggest hurdle to buying property in Australia, increasing political tensions have made him unwilling to part with more of his money.
Like Susan, Jack, who also declined to give his full name, said he would consider returning to the Australian market someday if overall conditions improve.
The political spat between the two countries over the last six months is only one of many reasons that have sent Chinese buyers packing, with tensions having both a direct and indirect impact on their willingness to buy, Susan said.
Students not returning to Australia to study, due to changes in courses and pandemic disruptions as well as fears of being racially targeted, have left many landlords at a loss. Flat purchases by mainlanders tend to be in student and migrant areas where demand is higher, so their absence has resulted in rents falling.
Recent surveys also revealed that swathes of Chinese students have decided not to commence study in Australia due to the unappealing nature of studying online and discrimination concerns amid the deteriorating relations between the two countries.
With fewer of their children studying in Australia, mainland parents are not buying as many flats. The declining number of Chinese migrating down under has also watered down the buying and renting pools.
Steven Chen, project director for Australian real estate firm The Agency, said the east coast Australian property market, once dominated by a sea of Chinese buyers, has become eerily quiet. And the overall market for new units in Sydney and Melbourne, in line with the broader economic slowdown across the country, has been stagnant, with only a handful of new projects launched in the past year.
“Where once we had a large pool of international buyers, they have now dissipated,” Chen said.
Some would-be mainland buyers are also avoiding local property exhibitions – a popular sales tactic used by many Australian developers and sales agencies – for fear of angering the Chinese government.
“My customers tell me there’s a lot of local press that Australia doesn’t care about China after it did so much for [Australia] during the financial crisis 10 years ago,” he said. “When things go wrong, they have sided with the US.
“They like Australia a lot, but they know the Chinese government is disappointed that there’s been no loyalty from Australia, even though China has been a fantastic trading partner.”
My customers fear the Chinese government. They are concerned if they don’t get their money out, the Chinese government [has the power] to take it away whenever
Steven Chen, The Agency
But their desire to move their money out of China is strong, and with fewer obstacles, they would flood the Australian property market again, Chen said.
“My customers fear the Chinese government. They are concerned if they don’t get their money out, the Chinese government [has the power] to take it away whenever,” he added.
What was once a win-win situation for Chinese buyers and Australian property sellers and developers has quickly been frittered away by political squabbling, other agents lamented.
Earlier this year, when conservative Australian MP George Christensen, who is also chairing an inquiry into trade diversification, called for China to make reparations over the coronavirus outbreak by giving back the Australian land and property that Chinese people had purchased, it caused a stir in the Chinese buyer community, according to Esther Yong, director of Australian-Chinese property website ACproperty.com.au.
“Imagine you’ve bought property in Australia, and the government decides to take it all back. People start adding that to the existing taxes, and then they start worrying if more penalties or punitive measures will be imposed,” she said. “And it’s not like it has never happened before. We saw how those surcharges increased rapidly over the years without so much as a warning.
“I think, overall, the sentiment about Australia in China is quite bad. In China, whenever there is news about Australia, it’s always negative, warning their people not to buy [property] or further their education in Australia.”
Another obstacle to Chinese purchases is the difficulty in transferring funds out of China. Chinese nationals are forbidden from buying property overseas, and controls over creative methods of transfers have been tightened, Chen said. His clients are worried about jail sentences if they are caught.
Sydney lawyer Chris Sun, who normally deals with Chinese buyers, said foreign inquiries have basically stopped.
I may buy again in a few years when the market recovers because I, along with many Chinese people, have many connections in Australia, and we like the lifestyle
Susan, property investor
“This year, the number of overseas buyers has declined significantly, but I think there are many factors: the pandemic, border closures, the recession, the property market downturn, purchase surcharges, negative news about building quality, migration difficulties, finances – with political friction only one of these reasons,” she said.
However, she expects Chinese buyers to return once the market starts to rebound and profits return, “because they love and believe in property”.
And that is especially so for Australian property, Susan said.
Her approach, as it is with many buyers, is a pragmatic one, and she can put politics aside if the investment is worthwhile, especially down under.
“I may buy again in a few years when the market recovers because I, along with many Chinese people, have many connections in Australia, and we like the lifestyle,” she said.
More from South China Morning Post:
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- China-Australia trade ties remain strong for some businesses despite worsening political relations
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This article Chinese homebuyers shun Australian market as coronavirus, political tensions take toll first appeared on South China Morning Post