As reports emerge that Chinese nationals are going so far as to divorce in a bid to dodge regulatory controls on the amount of overseas property assets they can own, concerns are growing locally around continuing foreign buyer activity.
Seemingly unperturbed by lending restrictions imposed by both Chinese and local banks, Asian investors are finding creative avenues to continue snapping up residential real estate across Sydney, Melbourne and Brisbane.
Anecdotal reports from real estate agents and slick new apartment salespeople in the thick of the frenzy, suggest buyers are targeting cheaper housing and turning to cashed up individuals or groups for private loan arrangements.
Regulators left reeling
The central bank has raised serious concerns on more than once occasion when it comes to the ongoing construction of new apartment stock, which has soared to dizzying, unprecedented heights over the past few years.
Officials in the finance sector hoped that regulatory intervention, compelling Australian lenders to restrict investment borrowing growth, would dampen the fire of foreign investment before it further fuelled serious affordability issues in Sydney and Melbourne particularly.
But despite regulatory efforts to make our housing market less appealing and attainable to overseas investors, Chinese buying inquiries have rebounded according to data from the country’s largest international property website, Juwai.com.
Local real estate insiders claim it’s not just the wealthier classes contributing to a reported 34 per cent rise in buying inquiries from across the water over the September quarter either.
Director of Lucror Property in Melbourne, David Chatterjee, recently told Reuters, “We’re now seeing people even from mid-tier Chinese cities such as Chengdu or Shenzhen coming in to Australia and buying. Most of the house and land buyers that we see are cash buyers.”
Getting around local roadblocks
While some foreign owned banks like HSBC and United Overseas Bank have stepped up to offer finance in lieu of the local big boys, the continued foreign housing buy up has also presented a plethora of opportunities for non-bank lenders.
This year, non-bank lender Pepper Group brokered the biggest funding deal the sector has seen in a decade, offering $700 million worth of residential mortgage-backed securities.
One senior executive from a family owned business in Shanghai told news agency Reuters he was approached by three investment managers, requesting he invest in funds specifically intended for Chinese residents to buy Australian real estate.
Some of these privately established funding pools are said to be returning as much as 15 per cent in interest charges.
The fact that Chinese nationals are prepared to pay such exorbitant rates on borrowings, just to get their foot in the Australian housing market, is no doubt worrying for those watching the apparently unstoppable flow of foreign buyers to our shores.
Why the worry?
In isolation it might seem like a glut of buying activity that leads to a surfeit of building activity, irrespective of its origins, means a buoyant housing market and increased accommodation supply. So…what’s the problem, really?
Well, in Sydney for instance, where much has been made of stock availability and affordability issues, some areas are becoming overrun with new high rise buildings, while demand is continuing to push up prices across the board.
After talk about a much needed slow down earlier this year, the traditionally busy Spring selling season has seen median prices in the Harbour City surge by 10.6 per cent for the past 12 months, according to CoreLogic.
“There is no doubt the apartment sector is probably overbuilt and there will be an adjustment there,” said RBA board member Ian Harper.
Optimistically though, he doesn’t feel a “major disruption of our current trajectory on the basis of a housing bust” is a likely outcome, due to falling housing debt to home values.
Those observing our local housing markets from afar however, don’t necessarily share Harper’s optimism.
“We can safely say Australia is still very much in bubble territory,” said strategist with Hong Kong based Apt Capital Management, Amy Reynolds.
Reynolds, who believes a price correction of up to 15 per cent is on the horizon, claims a soft landing is virtually impossible.
“When the bubble does burst there is going to be a shift in sentiment and things are going to move quickly.”
While we hope that Reynolds is wrong, things are certainly a lot more interesting now that our housing markets are so globally accessible.
Perhaps it wouldn’t hurt for the government to re-assess foreign investment policy, and take a considered look at the impact foreign buyer activity is having on some of our major capital city property sectors.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).