Chinese investment in worldwide real estate has been increasing over the last decade although there are concerns that this may have peaked in the short term. A recent report confirmed that Chinese real estate investment in Australia is up $6 billion from 2015 to a staggering $24 billion in 2016. On a worldwide basis it is estimated that Chinese real estate investors will have pumped in excess of $100 billion into the worldwide real estate market by the end of 2017. So, how are Chinese investors changing the face of the Australian real estate market?
One issue which will play into the hands of the politicians, who take great pleasure in criticising foreign investment, is a recent report estimating there are 200,000 empty homes in Sydney alone. It would appear that many foreign investors have acquired property but are yet to move in, instead choosing to wait until their children are of university age and then moving them to Australia. Some experts believe that properties could be left vacant for three or four years until required further down the line. If this is correct, it would exacerbate the problem of a lack of supply in cities such as Sydney.
A separate report covering rental yields appeared to back up this buildup of Chinese investment in Australian real estate. It seems that a growing number of Chinese investors are looking towards cities such as Sydney and Melbourne for their relatively high rental yields. In some ways there seems to be a move away from pure and simple capital appreciation with more focus now on long-term income streams via high rent properties. The likes of Adelaide, Brisbane and Canberra are also fairly high up the list of potential targets for overseas investors.
For some time now the Chinese government has been waxing lyrical about the introduction of restrictions on the amount of funds which can be invested overseas by Chinese nationals. This is a fairly blunt instrument but one which the Chinese authorities have used on numerous occasions in the past to regain control. The current restrictions have had limited success to date and this will likely prompt the Chinese authorities to clamp down even further. At some point these restrictions will kick in with some experts believing that 2016 could, in hindsight, be the year when Chinese overseas investment in real estate peaked.
Do overseas investors move prices?
Even the multibillion dollar figures gleaned from recent reports are but a drop in the ocean when compared to the size of the overall markets. However, one issue which will not go down well with Australian nationals in particular is the number of Sydney properties, owned by overseas investors, but currently empty. There is a trend amongst Chinese investors to acquire property ahead of their children attending overseas universities with many citing this trend for the reason why there are an estimated 200,000 empty properties in Sydney alone.
The Australian government has tried on numerous occasions to control overseas investment in the Australian real estate market with limited success. The fact is when markets struggle this level of overseas support can be extremely useful and the authorities need to be careful how they handle overseas investment in the more prosperous years. Would the Australian economy have dipped into recession during the 2007/8 downturn without Chinese investment in the mining industry and the knock-on effect on the real estate market?