The future of Chinese property investors in Australia remains uncertain as the Australian Taxation Office unveiled new legislation that requires foreign residents to pay 10 per cent withholding tax on properties worth more than $2 million. This is the latest development on the tighter lending regulations imposed on foreign buyers, which include proof of residency and citizenship for Sydney homebuyers and higher stamp duty rates for Victoria homebuyers.

Another thing that will make it difficult for overseas investors to purchase new Aussie property is the slowdown in apartment construction, which could affect supply over the medium term and lead to price increases.

"There are certainly unprecedented levels of new apartments coming into the main cities—particularly in pockets of Brisbane, Sydney, and Melbourne," said Andrew Schwartz, managing director of property-focused equity firm Qualitas. "However, it's likely that any excess supply will be absorbed by the market over a short period of time, due to continued strong migration levels."

Chinese buyers also interpret the tightening of rules as a sign of more to come.

"When a downpayment has been raised and then loan restrictions are introduced, inevitably it will impact investment. Many of our customers are concerned about this issue," said Wang Peng, general manager of Chinese property group UNME. In fact, many buyers who bought off-the-plan properties are now scrambling to find alternative loans before settlement, hence leading them to pay higher down payments.

As a result, overseas banks have been stepping in to fill the lending hole created by Australia's big banks.

"A lot of foreign banks have financed Australian product. HSBC, for example, will lend to Hong Kong buyers for Australian property," said Colliers International's managing director Tim Storey.

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