Foreign buyer limitations on property may come as surprise

It may surprise some miffed suburban homebuyers in Melbourne and Sydney, but foreigners cannot buy established houses for investment or as homes in Australia.

This is at odds with the growing perception that cashed-up mainland Chinese buyers are forcing locals out of the property race.

However, foreigners can buy new dwellings, off-the-plan houses or apartments under construction or yet to be built, or vacant land for development.

The latest Knight Frank Global Development Insight report, which looks at global buying trends for new property around the world, reveals that Chinese investors are the most influential buyers in the this sector, with investors from Singapore and Russia second and third.

Key findings are:

• 37% of respondents believe political and economic risk in a buyer’s home market as a key driver for international demand.

• New York, Paris and London are among the most sought after markets.

• 47% of respondents believe ‘the safe haven effect’ is the biggest drawer for their market.

• Education and lifestyle are increasingly important when investing overseas.

• Chinese, Russian and US-based investors are all expected to retain and grow their market share in new-build property over the next 12 months.

• Latin American buyers meanwhile, particularly those from Brazil and Mexico, are expected to feature more prominently in global new-build markets.

• China’s growing importance reflects the rise of Asia as a wealth creation hub. Asia is second only to North America in the number of billionaires, and the number of high-net-worth individuals in China is forecast to rise by 137% over the coming decade, according to data contained in The Wealth Report.

"There is strong demand from Asian buyers across all hubs in Australia, especially in Sydney and Melbourne,’’ says Sarah Harding, Knight Frank’s international project marketing - network director.

‘’We expect continued buyer activity from overseas, with buyers coming from China, Hong Kong, Singapore, Malaysia and Indonesia, driven in part due to tightening measures which continue to be imposed on Asian markets in an attempt to cool house prices.

‘’The report reveals that Sydney is rated as No. 1 for buyers in Hong Kong, while Indonesia ranks Sydney as the third top city. This could also be mainly attributed to the proximity, high standards of education and lifestyle options available in Australia."

Harding said offshore developers have been ‘landbanking’ sites over the past year, with Chinese and Malaysian developers actively marketing apartments in their local markets.

‘’Over the next three years we anticipate development activity to ramp up as the number of high-net-worth individuals in China is forecast to rise by 137% over the coming decade."

As well as being the top purchasers of new-build residential property in Sydney and Hong Kong, Chinese buyers are active in Kuala Lumpur and Bangkok’s prime new-build markets. They are growing in strength in key western markets, particularly New York.

The Chinese buyers’ global presence is fuelled by a strong Yuan and slowing domestic economy, encouraging Chinese investors to look further afield to diversify their investments, the Knight Frank report said.

Singaporean and Russian investors are the next most active buyers of new-build residential property around the world, followed by UK and US buyers.

Concern about the rise of Chinese buyers in Australia is in contrast to many European countries, which are tempting international investors with promises of residency and a reduced tax bill. This is because foreign buyers help stimulate struggling mainstream property markets and boost economic growth.

In Spain, Portugal and Greece, for example, large amounts of stock remains unsold as a result of property booms that came to an abrupt halt in 2008. In Spain, estimates suggest that at the end of last year there were around 700,000 new homes unsold on the market.

According to official data, mainstream property prices in Greece, Spain and Portugal are now 31%, 29% and 19% below their respective market peaks.

Knight Frank’s residential development teams around the world report that Asia - home to five of the top 10 leading buyers - should be viewed as an important market for developers to showcase new projects.

‘’In terms of pricing, research indicates that the leading international buyers for prime new-build residential property spend between $1.8 million and $3 million, and typically look for apartments with two or three bedrooms,’’ they say.