Chinese investment in Australian property takes a dive

Chinese investment in Australian property takes a dive

For some time, property advocates have been arguing that Australian residential real estate prices will remain buoyed by the steady stream of Chinese immigrants buying property at any price. Now, it seems, that stream is turning to a trickle as the impact of tighter credit starts to bite.

With records continuing to be shattered, its important to understand how prescient the marginal property buyer is. The next data point suggests that there is a widening band of hot air between the current buyer and those further down the list.

The news hasn’t received a lot of publicity so you might be hearing it here first – on the 25^th of May, Treasury Secretary John Fraser said that the volume of real estate investment approvals sought by Chinese residents from the Foreign Investment Review Board (FIRB) had fallen by roughly 60% in FY17 to date, relative to FY16.

Here’s how it was reported in The Herald Sun.

“Treasury secretary and Reserve Bank board member John Fraser says there has been a steep fall in applications since the Chinese government moved last year to slow capital outflows and reduce credit availability.

Foreign investment applications for residential housing in Australia totalled 40,000 last financial year, Mr Fraser said on Wednesday.

This financial year, that number was expected to fall more than 60 per cent to about 15,000, he said, “partly reflecting” the change in Chinese credit markets.

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

Mr Fraser was speaking after Moody’s Investors Service downgraded its credit rating on China by one notch, citing the likelihood of a material rise in debt across the Chinese economy.

Its growth had been fuelled by credit, he 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,” he said.

“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.”

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

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