What's behind the Chinese buyer phenomenon? Pete Wargent

There are a range of reasons for the recent surge in Chinese buyers in Sydney and Melbourne.

Australia currently has very low interest rates and the ability to fix rates for a long period of time at under 5% has stimulated real estate markets domestically.

The falling interest rates since November 2011 have also helped to take some of the heat out of the Australian dollar, making the country’s real estate a more attractive proposition for some foreign buyers.

Market commentators have noted that there has been the biggest inflow of investors in a decade, particularly in the Sydney market, so the trend is by no means only a Chinese phenomenon. Recent statistics from Australia’s largest mortgage financing group showed that nearly 50% of mortgages written in recent months have been for investors rather than homebuyers.

So, why do Chinese buyers look to buy in Sydney in Melbourne?

Sometimes it is to buy for children attending university in Australia, or for buyers to live outside China. Restrictions on buying in China combined with the risk of a speculative bubble have also seen Chinese buyers look overseas.

However, the greatest reason appears to be to find a place to park capital with expectations of capital growth: prospects for the Australian property markets have picked up dramatically since bottoming out in the first half of 2012. Median dwelling prices have increased by 9.5% in 2013 in Sydney and 7% in Melbourne and forecasting houses are predicting very strong growth for Sydney in 2014 of up to 15-20%.

Impact on the market

Due to foreign ownership restrictions, Chinese buyers have long been focussed on purchasing new builds in Australia rather than established properties. Companies such as a Meriton have long noted that at times up to three quarters of their sales have been to buyers from the Chinese mainland.

Statistics on foreign property buyers are notoriously hard to pin down, however.

In certain suburbs of Sydney close to the Central Business District, up to 75% of bidders at auction are said to be of Chinese origin, but given that the city has a large Asian population such trends are not easy to substantiate.

One trend which has confused commentators through 2013 has been that credit growth has remained at historically low levels, and yet dwelling prices have lifted significantly. There may have been an increase in the number of cash buyers, and this may particularly be the case for Chinese buyers in the inner city suburbs.

Suggestions to Chinese buyers

First and foremost, it is vitally important that overseas buyers ensure that they have the appropriate approvals in place before purchasing. Australia has restrictions on foreign ownership of established dwellings.

With respect to buying property as an investment, the normal rules apply. Buyers should focus on acquiring quality properties for which there will be a very strong long-term demand, and should take care not to become involved in bidding wars and thus paying too much for a property.

In particular, buyers from overseas should be wary of over-paying for off-the-plan properties which often include a material developer premium resulting in relatively high entry prices and low rental yields.

As is always the case in the property markets, certain property types and locations – particularly the inner suburbs of Sydney which have low vacancy rates and a booming immigrant population - look set to outperform the wider market."

His new book 'Four Green Houses and a Red Hotel' was released on 1 September 2013.

Pete originally wrote a version of this article for the Chinese language newspaper Vision China Times.