Steep fall in Chinese residential applications this financial year: Treasury secretary John Fraser

Steep fall in Chinese residential applications this financial year: Treasury secretary John Fraser
Steep fall in Chinese residential applications this financial year: Treasury secretary John Fraser

There has been a dramatic decline in property applications from Chinese investors ever since the Chinese government turned the screws on capital outflows and reduced credit availability.

Treasury secretary and ­Reserve Bank board member John Fraser said foreign investment applications for residential housing in Australia were expected to fall more than 60 per cent to about 15,000 this financial year, from 40,000 the previous year.

Fraser attributed the steep fall as “partly reflecting” the change in Chinese credit markets, according to an article in www.macrobusiness.com.au citing the Herald Sun.

The figures come amid warnings from property buyers’ advocates in recent years that strong foreign demand for Australian property has contributed to a price surge in some cities.

Fraser’s observations come amid news reports that Chinese investors are pulling out of Melbourne's apartment market, leading to a cooling in prices.

Around 5,000 new apartments are expected to be completed and up for sale this year, but many Chinese buyers will not be able to settle because of trouble with finances following Beijing’s policy crackdown and Australian banks tightening lending to investors.

Fraser’s comments came after Moody’s Investors Service downgraded its credit rating on China by one notch.

Moody's downgraded China's long-term local currency and foreign currency issuer ratings to A1 from Aa3 and changed the outlook to stable from negative on Wednesday, saying the downgrade reflects expectations that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows.

Its growth had been fuelled by credit, Fraser said, but “Chinese authorities are clearly aware of the risks attached to this”.

“They are now implementing measures to maintain stability and this has included measures to reduce the outflow of capital from China,” Fraser was quoted as saying in the article.

“In turn, this has contributed to a softening of Chinese investment in Australian resi­dential real estate since late 2016 — although interest in business investment remains strong but, even here, we are seeing the impact of tighter credit availability.”

Around 80 percent of Chinese buyers will not be able to settle because of trouble getting finance, according to Ming Li, a real estate agent in Melbourne's eastern suburbs who specialises in selling Australian property to Chinese investors.

He said many of his clients had either forfeited their deposits or sold their apartments at a loss.

"The Melbourne apartment market is cooling down," Li was cited as saying by ABC News.

"It is kind of the oversupplied market, and the Chinese investors are losing their interest in buying an apartment in Melbourne. The capital gains return is so low."

China’s new rules only allow individuals to transfer about US$50,000 overseas, per head per year. Combined with Australian banks tightening availability of credit to investors, it is like a double whammy for Chinese investors.

"If you look at apartment approvals, which is a bit of a reflection on apartment off-the-plan demand, they peaked 18 months ago, and [now] they have started to slow,” Angie Zigomanis, BIS Oxford Economics property analyst, was quoted by the ABC.

"We did an analysis a little while ago looking at people who had purchased an apartment off the plan since 2011 and since resold."

Zigomanis found that: "Sixty per cent of buyers who had purchased off the plan and then resold recorded either no price growth or a loss."

Citi has warned that the downturn in apartments will filter through to a 7 percent price correction next year in the broader housing market.

Tags: 
Chinese Buyers Residential Market

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