Why the Asian appetite for Aussie property won’t be quenched anytime soon

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It’s easy to understand why Asian investors are drawn to Australia like nails to a magnet. The country has enjoyed decades of political stability and uninterrupted economic growth; its educational institutions are some of the best in the world; and its cities are clean, spacious, and cosmopolitan.

Australia is also perceived as being less of a culture shock than other western countries due to its temperate climate and well-established Asian communities. All one needs to do is explore the leafy, affluent neighbourhoods of Chatswood in northern Sydney and Box Hill in Melbourne’s eastern suburbs to see the well-settled Asian immigrants and the businesses that cater to them. In short, it’s very difficult to feel alienated in a foreign land when there’s so much to remind you of home.

Even Asian investors who aren’t contemplating making a move Down Under are attracted to the country’s thriving rental market and high demand for luxury property—particularly in the booming eastern capitals where there’s a virtual guarantee of return on investment.

Locals have also been bitten by the property investment bug, with record low interest rates prompting more Aussies to invest in real estate—a growth of nearly 10% in 2015. Sydney’s real estate boom has seen many owners of property become millionaires in recent years, and Melbourne isn’t too far behind.

Housing boom or bust?

On the other hand, double-digit house price growth in Sydney and Melbourne is worrying many pundits. They see the property boom in the eastern seaboard as a bubble that’s getting ready to burst, with catastrophic results.

Last June, the Paris-based Organisation for Economic Co-operation and Development (OECD) warned of a “dramatic and destabilising” end to Australia’s housing boom. The OECD’s assertion was backed by a rise in the number of new apartments entering the market, suggesting oversupply, as well as relative political instability following the recent inconclusive Federal elections.

More pressingly, the OECD profiled the Australian economy in a new report this month, warning that the rapid growth in the nation’s house prices could be a precursor to an economic downturn.

On the other hand, Charles Pittar, CEO of Juwai.com, an international Chinese-language property portal, has his own interpretation of the OECD’s June report.

“The OECD report actually predicts that output growth will strengthen towards three percent next year, economic growth will pick up and inflation will fall,” Pittar said. “The report also describes ‘receding risks from the housing boom’, but does not predict a ‘dramatic and destabilising end’. It merely says there is always a chance their analysis is incorrect and – in that case – there could be such an outcome. To call that a prediction is a mistake.”

Undeterred, Asian investment is stronger than ever

Despite Beijing’s recent efforts to limit outbound capital flow, Chinese overseas property investment is stronger than ever. Australia remains the second most popular destination for Chinese property buyers after the United States.

Suburbs near universities remain a huge drawcard for buyers looking to provide suitable accommodation for their children. Case in point: Melbourne’s inner-city suburb of Carlton, near the University of Melbourne and RMIT, has a considerable international student population. Many of Carlton’s residents are students from China, Malaysia, and Singapore.

Despite a mild backlash from some locals and politicians, and the banks’ new restrictions on lending to foreigners, the “Asian invasion” is far from over. “We see Chinese buying growing in the next few years to new highs,” said Pittar. “They are still eager to diversify their investments and to open up opportunities for their children overseas. And Australia is still a well-regarded destination for investment, education and immigration.”

Three things to consider before buying property in Australia:

1. Know the rules: The Foreign Investment Review Board (FIRB) is a great place to get the latest information on notification requirements and guidance.

2. Apply for approval before proceeding to purchase: In the case of established residential dwellings, as a foreign investor, you’ll need to apply for an established dwelling exemption certificate via the Australian Tax Office (ATO).

3. Be wary of hidden fees and taxes: Note that there are additional taxes for offshore buyers, as well as potential difficulties in accessing finance, particularly with so many Aussie banks clamping down on lending to non-residents.

 

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