Fresh fears as Chinese buyer demand ‘hits the wall’

Industry stakeholders have noted that restrictions imposed on foreign investors looking to purchase Australian property are beginning to trigger a significant reduction in demand from Chinese investors.

A NAB Residential Property Survey recently revealed that demand for new property in the Australian housing market has fallen to a five-year low of 9.5 per cent.

Chairman and CEO of N1 Holdings Ren Hor Wong has observed from his dealings with Chinese investors that demand had “definitely slowed”.

Mr Wong partly attributed the drop to the “shutting down” of lending from Australian banks to foreign investors, but he believes that increases in stamp duty surcharges have had the most significant impact.

“We just don’t see a lot of activity anymore,” the chairman said. “A lot of people thought [restrictions on lending to Chinese investors] would affect demand, and it does, [but] according to unofficial statistics, most buyers, more than half of them, don’t borrow anyway.

“What kills the industry is the stamp duty surcharge.”

While acknowledging that stamp duty surcharges have had an effect on demand from Chinese investors, large development specialist and Acuity Funding managing director Ranjit Thambyrajah believes that the surcharges are “only one factor” but they did not have the most significant impact on demand.

Mr Thambyrajah said that tightened controls on capital outflow in the Chinese market have deterred Chinese property developers from investing in Australia’s housing market.

“A lot of Chinese developers have hit the wall a bit because they’ve been caught by changes in development policies in China where they’ve stopped them from taking capital out [of the country],” the development specialist noted.

He also claimed that tightening of lending measures to foreign investors from Australian banks have “caused a big problem”, stating that many major Chinese developers are now attempting to sell property at a cut price.

He said: “Australian banks have also tightened on lending to people without local experience, so that’s caused a big problem, and some of the big developers are now trying to sell their sites, with a lot of developers probably paying a premium to start with and selling it into a market where money is tight.”

The development specialist also noted that demand for established housing from foreign investors has also dropped and contributed to a fall in home prices.

“[We] have noticed a lot of the Chinese contracts falling over,” Mr Thambyrajah continued. 

“The prices of the finished product have actually dropped because they cannot attract the same prices from the local market that they were attracting from the overseas market.”

The slowdown could have major ramifications for the Australian property market. AMP Capital chief economist Shane Oliver is predicting further declines in the Sydney property market this year, driven by “tighter lending standards, rising levels of unit supply, slower Chinese demand and reduced investor enthusiasm for property”.

In its 2018 outlook of the Australian banking sector, Fitch Ratings also noted that reduced growth in the Chinese economy could have a “sharp” impact on the Australian housing market.

However, China expert and managing director of Cross Boarder Management CT Johnson believes that a drop in demand from Chinese investors will have “no impact” on the Australian housing market.

“It will have no impact on the market at all because there are many other buyers coming in,” Mr Johnson said.

“The foreign impact on property prices is minimal. In fact, we did a study on that and we found that the impact was less than 1 per cent on the price of properties in Sydney, Melbourne and Brisbane.”

Mr Johnson added that domestic rate tightening is much more likely to reduce housing activity in the Australian market.

“Rising interest rates are much more likely to depress the price of housing or slow the prices down,” the expert continued.

“Long-term demand will be strong as it is [now]. The only reason why we think it’s weak is because it’s down from the high growth rates in terms of the number of groups coming into Australia from a few years ago.”

[Related: Market downturn kicks off 2018]