Chinese investor interest continues

One-third of Australian residential development sites in 2017 were purchased by Chinese investors and developers, equating to $2.02 billion of site sales, according to Knight Frank’s latest report.

Chinese Developers in Australia – Market Insight 2018 reveals that 29 per cent of Australian development sites purchased by Chinese developers and investors were suited to low density – up from two per cent in 2013.

“As Chinese developers gain experience in higher-density projects across the major cities, there has been diversification in many of their portfolios to include medium and lower-density sites,” says Knight Frank’s head of Asian markets in Australia, Dominic Ong.

Ong says low-density projects also tend to have “less hurdles with the imposed tighter lending restrictions, and overall,” which “lowers the delivery risk to the developer”.

Belinda Ngo, executive director of the Property Council’s capital markets division, says international investment in residential developments helps create much needed housing supply, and with it local jobs and economic activity.

“In 2015-16 alone, there was a $67 billion shortfall between Australia’s domestic savings and its investment needs. Without foreign investment to make up this shortfall, Australia would be worse off,” Ngo says.

“We also benefit from strong flows of international capital into commercial real estate, which helps create world class office buildings, industrial precincts and shopping centres,” Ngo adds.

Michelle Ciesielski, Knight Frank’s head of residential research in Australia says sustained developer interest in the Australian market comes despite “government efforts in both Australia and China to tighten credit conditions as they relate to residential investment and development”.

The Australian Prudential Regulatory Authority has encouraged local financial institutions to impose stricter controls. The Chinese Government has also imposed new rules for companies which make yuan-denominated loans to overseas entities, although this was relaxed “somewhat” in 2017, Ciesielski says, “resulting in a boost to market confidence”.

Ciesielski says Sydney and Melbourne continue to be favoured by Chinese investors – and this is likely to be sustained “for both approved and raw sites”.

Victoria recorded the sale of 38.7 per cent of residential sites to Chinese buyers – the highest share of all states.

“This follows sustained growth in population, strong residential capital gains and a relatively low total vacancy,” Ciesielski explains, adding that “many developers consider that Melbourne offers better relative value when compared to Sydney”.

New South Wales followed, with Chinese buyers comprising 35.6 per cent of total volumes.

The Property Council’s chief of policy and housing, Glenn Byres, says Sydney and Melbourne are both “gateway cities” for offshore investors.

“They both benefit right now from having the nation’s two strongest economies and higher rates of growth. There is an inevitability to them being the start point for offshore capital.

“Other states should give themselves a competitive advantage by removing odious taxes on foreign investment, and revving up their infrastructure pipelines to help create and map future growth,” Byres concludes.